Changes are coming! Here’s everything you need to know about the TRID rule

October 5, 2015

You would think the world was ending! At least that’s what it sounds like when I hear folks talking about the TILA-RESPA Integrated Disclosure rule (TRID) – otherwise known as “Know Before You Owe.” It’s created a bit of nervousness in the industry as banks attempt to interpret and implement new programs and systems to adhere to new government regulations. As a mortgage professional, I strive to provide my clients with all the facts, so that they understand the components of their loan. The real question is will these new requirements provide incremental clarity or just make an already complex process more unclear?

I wanted to see what someone outside of the mortgage industry thought about these changes. My friend Liz, a local social media marketing consultant, shares her thoughts:

TRID from the perspective of an industry outsider

I’ve always believed that the best way to learn something is to help others understand it, so when Geoffrey asked me to write about the upcoming changes the mortgage industry is facing I was all in. His request seemed simple enough, but as I dug in I found more questions at every turn. I also found lots of answers, and can now share with you a
summary of what changes to expect, when they will take effect, and what they mean to you.

What: The Consumer Financial Protection Bureau is the regulatory agency that oversees consumer finance markets by making and enforcing rules, and increasing our (consumers) control over our financial worlds. One of these rules is called the TILA-RESPA Integrated Disclosure Rule (commonly referred to as TRID – yes, an acronym despite the first two “words” already being an acronym), and was originally enacted in May 2011. TRID’s original purpose was to simplify the loan process and to make it easier for people to understand their loans. Last year, the CFPB proposed updates to TRID in order to make it easier for lenders to comply without inconveniencing consumers. That all sounds pretty reasonable, right? Now it’s time to implement…

When: Well, right about now. Applications received prior to October 3rd are not subject to the new regulations and will proceed under the previous rules, so if you started the process before that date, this won’t apply to you. For the rest of us, October 3rd is the date.

How: This is my favorite part, because the real answer is that Geoffrey and his team handle the “how”, but I’ve done my homework and I can give you more than that. There will be two new forms to complete: the Loan Estimate (LE) form replacing the Good Faith Estimate and the Initial Truth in Lending Disclosure, and the Closing Disclosure (CD) form replacing the HUD-1 and the Final Truth in Lending Disclosure. There is a mandatory three day waiting period from the time the borrower receives the Closing Disclosure form until closing. Weekends (Saturdays and Sundays in most cases), and federal holidays aren’t included in those three days.

Why: Seriously, this seems to be in keeping with the CFPB’s mission to simplify processes and protect consumers. While I bet the stack of papers we see at closing is still substantial, they’ve been reduced by a few, and the waiting period just means that we (borrowers), have more time to review critical information before we close on the loan.

Bottom Line: While the changes are making a big impact to the mortgage industry, they should be seamless for consumers – assuming you’re working with the right people. Geoffrey and First United are well prepared and are committed to maintaining their service level. You’ll send them the same six pieces of information that were always required to initiate your loan application (name, income, SSN, property address, home value, and loan amount), and then maintain open communication throughout the process. Easy-peasy!

Liz Marx

Loan Recasting Explained

July 6, 2015

loan recastingI’m frequently asked about loan recasting: what it is, how it works, and when it makes sense. It’s not widely discussed, in large part because it’s not available from all lenders and is only available on conventional loans. In some circumstances, it’s the ideal solution.

Loan recasting is the reduction of monthly loan payments without modification to the terms or interest rate of your current loan. Monthly mortgage payments are reset when a significant amount (reducing your current loan balance by at least 10%) over and above regular payments is paid toward the principal. If you know you have a large chunk of money that you want to put towards your mortgage, doing a recast is a way to have those funds reduce both your mortgage interest and your monthly mortgage payment.

Recasting doesn’t result in an early payoff, but it does reduce the amount of interest you’ll pay over the life of your loan because it recalculates your loan payment and amortization schedule based on the new lower principle balance of your mortgage loan. Additionally, no appraisal or credit check is required for a loan recast which may make it appealing for some homeowners. Fees for loan recasting vary from lender to lender but could range in the $250 to $500 amount.  It is also important to know a recast is only available once for the life of a mortgage loan.

It may not be the right option if it consumes most or all of your cash savings, or if you could significantly reduce your interest rate by refinancing. If your goal is to simply pay off your mortgage sooner, talk with your lender about the best way to accomplish that given your circumstances.

What does this mean for you? It’s more important than ever to choose a lender that does not re-sell loans, so that you can maintain a trusted point of contact to advise you throughout the length of your mortgage.

Know Before You Owe: What do upcoming changes mean for you?

June 19, 2015

house with key

If you’ve ever been to a mortgage loan closing, you probably couldn’t help but notice the rather large stack of paperwork that has to be completed. Ideally, your mortgage lender was there with you to walk you through the process.  Each of the forms and disclosures included in that stack serves a purpose, helping to protect both parties’ interests and ensure fairness. While each item is important, the sheer bulk combined with industry jargon became overwhelming and confusing.

In order to simplify the process and help make sure people were better able to understand their loans, the Consumer Financial Protection Bureau enacted the TILA-RESPA Integrated Disclosure Rule – commonly referred to as Know Before You Owe – in May 2011. Last October, the CFPB proposed updates to this rule designed to make it easier for lenders to comply without inconveniencing consumers, and to make changes to the Loan Estimate form.

Originally, these updates were proposed to be effective on August 1, 2015.  As of June 17, 2015, the proposal was amended to be effective October 1, 2015, in order to allow time to correct an administrative error and to avoid having the transition coincide with a time when so many people are transitioning to new homes before the start of a new school year.

What does this mean for you? While the changes are intended to continually make the process easier to understand, walking through the transitions can be challenging. Now, more than ever, it’s important to have a trusted advisor by your side. If you are considering a move or refinance and would like to discuss how these changes will impact you, I’m here to help. Email or call me and I will be happy to help you understand the implications.

Important Considerations for New Home Buyers

May 13, 2015

new home plans

As I’ve been working on loans for both new and existing homes during this busy start to the 2015 Home Buying season, I want to share some important insights as it relates to new home purchases. Owning a new home that you build from the ground up can be a great way to get exactly what you want, but it does come with some “watch-out” scenarios of which buyers should be aware. They can cost you more than you expect.

  • Who’s really paying for this “Use our mortgage company” Incentive?
    Well, clearly you are. It’s in there somewhere as builders are in the business of making money, not giving away homes. Whether in a 1% higher house price, slightly higher fees or a half point higher interest rate over the term of the loan – you will pay for it somehow. Since none of us are naïve enough to expect to get something for free, make sure you understand how you are covering for the total cost of these incentives over the term of the loan. It’s reasonable to pay for incentives somewhere, but make sure you know how much they are really going to cost you.
  • Bring a Realtor
    It seems like common sense, but it’s always smart to bring a Realtor no matter how much the builder’s sales agent says you can save. A Realtor is your first line of defense to ensure you are getting a fair deal and that your rights are protected during the transaction. The second line of defense is your lender. As a mortgage lender, I want you to be in the best program possible because I see it as a long-term relationship versus a single transaction. I do care if you spend too much or get in over your head financially. Even if we cannot do business together, I don’t want you to end up in a loan program that will cause problems later. If you’re thinking about using a builder’s mortgage company, please talk to at least one other lender to make sure you’re getting the loan program you think you are.
  • Non-Standard Contract – Why?
    If you’ve ever bought an existing home, you’ve probably used a standard contract. In Texas, we have one that was written and approved by the Texas Real Estate Commission (TREC). The purpose of this standard contract is to keep things as straightforward as possible for both the buyer and seller. Builders, however, do not always use this standard contract preferring to have their attorneys write a different version. Why? Well, that’s a great question you should ask your builder. I think if you put the TREC contract side-by-side with the builder’s contract, you will see it was not written with simplicity in mind. Make sure you have your Realtor, and the sales agent, walk you through each piece so you know what you’re committing to before you sign a contract.
  • Appraised Value – can it really sell for that much?
    Each lending company works with a panel of appraisers to assess the value of the homes they finance. With both the builder and their mortgage company dependent on home sales to stay in business, it can create a situation where your interests inadvertently may not be served. I had a new home build situation last year in which a builder’s sales agent told my client that if they had used their mortgage company the property would have appraised, as the one we got for the loan was lower than the sales price. The purpose of an appraisal is to protect you, and the company who is ultimately going to own/service your loan, from paying too much for a property – not just to close a sale.
  • Loan Sell-Off
    A builder’s mortgage company typically sells off your loan once you close. This further reinforces my previous point: that they have no skin in the game should you have a loan amount for more than your house is really worth in the market. Essentially, they wash their hands of any financial accountability once you close the deal. In addition, you have no say in who services your loan and the customer experience they provide. I recommend you price shop with a bank who will keep and service the loan so you can assess the trade-offs.
  • Too much personal info, too many people
    Behind the magical curtain of lending, are the standard “rules” set by Fannie Mae/Freddie Mac that all lenders follow regarding loan programs. These rules provide the foundation for all mortgage lending. However, the companies who purchase your loan after you close may have additional requirements known as “overlays.” Since a builder’s mortgage company maybe actively trying to shop your loan needs to several loan “buyers,” you might find yourself being asked for all the additional requirements/overlays for multiple mortgage companies. You could end up providing lots of information, to lots of people, who in the end really didn’t need that information.

Overall, purchasing a new home can give you the kind of home you want without all the hassle of making changes to an existing home. I encourage you to use a Realtor who is savvy in your specific area and has done previous new home transactions. If you are uncertain who to use, I can refer you to a Realtor who is a good fit based upon your needs and preferences. On the financing side, some builders are more competitive than others depending upon the incentives they offer, so it’s important to run the numbers. At a minimum, it’s still a good idea to do at least some level of price comparison in terms of rates and fees with a lender you trust.

Are Fannie /Freddie Letting Go?

December 9, 2014

unnamedIf you have been watching the news, you may have heard that Fannie Mae/Freddie Mac are loosening the reins on their mortgage lending guidelines. In reality, most of what is happening is clarification around existing guidelines.

Most lenders when they originate a loan basically borrow the money from Fannie/Freddie to lend rather than using their own money. Yet, in order to do so they must meet certain criteria laid-out by Fannie/Freddie. If a lender fails to meet these standards they can be fined or could even end-up holding the loan on their own ledger. Since the guidelines were perceived to be a bit ambiguous, lenders started interpreting these rules for themselves-resulting in variations in lending requirements across the industry. Obviously this was not what Fannie/Freddie intended, so back in October they agreed to provide clarification.

What does this mean to you? Really what you will see is more consistency around lending practices as you consider financing options, especially at the mid/lower 600s credit score range. As always, I encourage anyone looking at a loan to evaluate multiple lenders to make sure you are getting the program you think you are before you sign on the dotted line.

Mortgage Payment Service Plans: Scam or Slam Dunk?

October 28, 2014

calculator coinsEach time that Julie and I have done a mortgage we always think long and hard about whether we want to do a 30-year or 15-year term. If you look at how much more you pay in interest over the life of the loan, it can be really tempting to try to squeeze the budget to do a 15-year loan (or even a 20 year or 25 year term). On a $250k home, the difference between the two at today’s rates is roughly $130k in interest-That’s a ton of money. Because we never know what life will bring, most folks opt to do a 30-year loan and pay at a more aggressive rate to give them flexibility as needed. Even making one extra loan payment a year can shave approximately five years off your loan term with current rates.

Many clients also consider using a mortgage payment service where you allow a service provider to set you up on their system and accelerate your loan payments. The major advantage of using such a program is to provide structure if you think you will be unlikely to commit to making additional payments yourself.

Two Primary Types of Plans:

  1. Bi-Weekly Payment Plan: Pay Half Payment every Two Weeks
    While normally you would make 12 payments a year, this plan has you making the equivalent of 13 payments-through 26 half payments during a calendar year. The extra payment goes directly to paying off the principal amount on the loan which can definitely add up over time.
  2. Bi-Monthly Payment Plan: Split Monthly Payment into Two  This plan pays on the 1st and 15th of every month and is built on the premise that by making a payment mid-month you are reducing the total interest due on the 1st. In this scenario, you are not paying any more each month, just paying a portion of it early. This approach will save some interest over the term of the loan but not a material amount.

Generally, companies charge an initial set-up fee of a few hundred dollars, and then a minimal transaction fee (usually around $1) each time they make a payment on your behalf. In my opinion, if you feel like you need the structure, the Bi-Weekly Payment Plan is the only one worthwhile. Or, you can do:

The DIY Mortgage Plan using Online Bill Pay

  • Bi-Weekly Payments: Auto-schedule half your mortgage payment every two weeks, which will result in making an extra payment a year
  • Increased Monthly Payment: Take your current monthly payment, divide by 12, and add that amount to each of your monthly payments. You will still make 12 payments, but will squeeze in that one extra payment during the year.

The upside to doing it yourself is that you pay no fees and maintain a level of flexibility if you need it. Diverting extra cash to pay-off your loan early can be a great way to reduce your mortgage debt and pay less of your hard-earned money in interest.

Divorce Series: Managing Credit During Relationship Changes

September 5, 2014

credit score

Managing through a relationship transition can be challenging enough without worrying about how such a change might impact you financially. Over the years, I’ve seen some of those closest to me go through these kinds of changes and have always been in awe of their strength.

Whether you are facing a permanent change or considering something more temporary, it’s important to evaluate how these changes might impact your credit. After speaking with my good friend Darren Coakwell, owner of Crossover Credit Solutions, here are some things to consider:

  1. Current Credit Picture
    Understanding the current state of your credit , and what debts you owe together, can help you know what will have to be unraveled if you separate. It can also help provide insights around the state of your credit as an individual and (if needed) help you design a plan to improve it.
  2. Shared Assets
    If you have a home, retirement, or other assets acquired during your marriage, itemize them to understand what will need to be divided amongst the two of you. If you use a financial planner, he/she can be a good source for this information.
  3. Managing Current Credit Lines
    In most circumstances, shared credit lines will be closed once a divorce is finalized. When this happens, the closing of these accounts can negatively impact your credit. With this in mind, it’s important to consider the timing of things that are credit sensitive – such as financing the home solely in your name – before you close these lines.
  4. Protecting Credit with a Credit Freeze
    One way to prevent new credit lines from being opened without your knowledge is to put a credit freeze in place. With a freeze, the bureaus will not release your credit information without your consent. While this might be a bit of a pain if you want to open a legitimate account, it can help mitigate the risk that your credit could be damaged should things become contentious.
  5. Details Matter
    If you decide to move forward, it’s important that the divorce decree is as detailed as possible around what will happen to debts/assets–and when these changes will occur. As someone who regularly sees decrees when helping folks finance their homes, the more explicit here the better for all involved.

During times of change, keeping things as straight-forward as possible can help ease the burden. Arming yourself with knowledge around what you should do legally (via an attorney) and what you can do financially (via a mortgage lender or credit consultant) may help reduce your stress.


p.s. Here is a good amount of information about how FICO works if you were wondering.