As I wrote in a previous column, when the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law in 2010, it created the Consumer Financial Protection Bureau (CFPB).
One of the mandates for that law was to combine perhaps the biggest consumer disclosures, the Truth-In-Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), into a single delivery package for a loan applicant.
The result of their research and efforts has become known as TRID, the TILA/RESPA Integrated Disclosures Rule, or DIRT spelled backwards.
Since this rule went into effect on Oct. 3, your lender must now follow very strict pre-application and pre-disclosure requirements when taking your file through their approval system.
Therefore, it’s important that you understand how some of these TRID rules are designed to reinforce what can or cannot occur prior to the receipt of a full application by your lender.
For example, let’s start with the definition of an application. According to the CFPB, a loan application continues to be defined by the six bits of data many in the mortgage industry know as “ALIENS.”
When all six items are known — such as address, loan amount, income, estimated value, name and Social Security Number — then your lender has an official application from you and must deliver initial loan disclosures to you within three business days.
Furthermore, one of the intentions of the Consumer Financial Protection Bureau under TRID is to prevent your lender from requiring documentation from you prior to issuing what’s called a loan estimate or previously a good- faith estimate.
Your lender can request documentation from you, but cannot require it. Yes, this sounds strange and it’s a big learning curve for everyone in the industry to navigate around as well.
Basically, if you’ve provided all six data points that define an application, the loan estimate must be disclosed within three business days, even if the information in the application still hasn’t been verified.
Should your lender request documentation prior to sending you a loan estimate, it should not be called a “needs list” as there is an implication that documentation is required. Instead, the preferred phrase you are likely to hear from your lender going forward now is “requested documentation.”
The receipt of a purchase contract cannot be a requirement to issuing a loan estimate either. If your lender receives the property address and has the other five data points of a loan application, then your lender must disclose the loan estimate, even if they don’t have the purchase contract yet.
Lastly, it’s important that your lender has a specific home loan approval process they follow to make sure you are being served in the best way possible and to create an experience for you that’s not overly complicated.
Without a structured system in place, you might run into unnecessary delays and excessive paperwork requests throughout your transaction. Due to the lengthy amount of new rule changes under TRID, things can get dirty really fast if you trigger enough of the “ALIENS” at the wrong time along the way.