Key Takeaways
- The Loan Estimate must be provided within 3 business days of receiving a loan application
- The Closing Disclosure must be provided at least 3 business days before consummation (closing)
- TRID (TILA-RESPA Integrated Disclosure) rules combined previous disclosure requirements into the LE and CD
- Zero tolerance fees cannot increase from LE to CD; 10% tolerance fees allow cumulative 10% increase; unlimited tolerance fees have no caps
- A valid change of circumstance (COC) allows the lender to issue a revised Loan Estimate with new terms
- If the CD changes significantly, a new 3-day waiting period may be required before closing
Loan Estimates and Closing Disclosures
The TILA-RESPA Integrated Disclosure (TRID) rule, which took effect October 3, 2015, combined four previous disclosure forms into two streamlined documents: the Loan Estimate (LE) and the Closing Disclosure (CD). Understanding these disclosures and their timing requirements is essential for MLOs.
What is TRID?
TRID stands for TILA-RESPA Integrated Disclosure. It merged requirements from:
- Truth in Lending Act (TILA) - Required lenders to disclose loan terms and costs
- Real Estate Settlement Procedures Act (RESPA) - Required disclosure of settlement costs
Before and After TRID
| Before TRID | After TRID (October 2015+) |
|---|---|
| Good Faith Estimate (GFE) | Loan Estimate (LE) |
| Truth in Lending Disclosure (TIL) | Combined into LE |
| HUD-1 Settlement Statement | Closing Disclosure (CD) |
| Final TIL | Combined into CD |
Who Does TRID Apply To?
TRID applies to most closed-end consumer mortgage loans, including:
- Purchase loans
- Refinances
- Home equity loans (closed-end)
- Construction-permanent loans
TRID does NOT apply to:
- HELOCs (open-end credit)
- Reverse mortgages
- Manufactured housing not attached to real property
- Loans made by creditors who make 5 or fewer mortgages annually
The Loan Estimate (LE)
The Loan Estimate is a standardized 3-page disclosure that provides borrowers with key information about the proposed loan.
Timing Requirements
Critical Rule: The Loan Estimate must be delivered or placed in the mail within 3 business days of receiving a loan application.
What Constitutes an Application? An application is received when the lender has these 6 pieces of information:
- Borrower's name
- Borrower's income
- Social Security number (to obtain credit report)
- Property address
- Estimated property value
- Loan amount sought
Business Day Definition for LE: A business day is any day the creditor's offices are open for substantially all business functions - typically Monday through Friday (excluding federal holidays).
Loan Estimate Components
The LE contains three pages with standardized information:
Page 1 - Loan Terms and Projected Payments:
- Loan amount, interest rate, monthly principal & interest
- Prepayment penalty (yes/no)
- Balloon payment (yes/no)
- Projected monthly payments including escrow
- Estimated taxes, insurance, and assessments
Page 2 - Closing Cost Details:
- Origination charges (broken down by item)
- Services borrower cannot shop for
- Services borrower can shop for
- Other costs (taxes, prepaids, initial escrow)
- Calculating cash to close
Page 3 - Additional Information:
- Contact information for lender and mortgage broker
- Comparisons (APR, Total Interest Percentage)
- Other considerations (appraisal, assumption, late payment policy)
Shopping for Services
The LE identifies which services the borrower can shop for:
| Cannot Shop For | Can Shop For |
|---|---|
| Appraisal | Title - Insurance |
| Credit report | Title - Settlement agent |
| Flood determination | Title - Title search |
| Tax monitoring | Survey |
| Pest inspection |
Provider List: If a borrower can shop for a service, the lender must provide a written list of service providers the borrower can use.
The Closing Disclosure (CD)
The Closing Disclosure is a 5-page document that provides the final terms and costs of the mortgage loan.
Timing Requirements
Critical Rule: The Closing Disclosure must be provided at least 3 business days before consummation (closing).
Business Day Definition for CD: For CD timing, a business day is all calendar days except Sundays and federal holidays. Saturday counts as a business day!
Example Timing Calculation
If closing is scheduled for Wednesday:
- Count back 3 business days: Tuesday (day 1), Monday (day 2), Saturday (day 3)
- CD must be received by borrower on Saturday (or earlier)
If closing is scheduled for Friday:
- Count back 3 business days: Thursday (day 1), Wednesday (day 2), Tuesday (day 3)
- CD must be received by borrower on Tuesday (or earlier)
New 3-Day Waiting Period Triggers
If certain changes occur after the CD is provided, a new 3-business-day waiting period is required:
| Change | New 3-Day Wait Required? |
|---|---|
| APR increases by more than 1/8% (fixed) or 1/4% (adjustable) | Yes |
| Loan product changes (fixed to ARM, etc.) | Yes |
| Prepayment penalty added | Yes |
| Closing costs increase but within tolerance | No |
| Interest rate decreases | No |
Fee Tolerance Categories
TRID establishes strict rules about how fees can change between the Loan Estimate and Closing Disclosure.
Zero Tolerance (Cannot Increase)
These fees cannot increase from LE to CD:
- Origination charges (lender fees)
- Transfer taxes
- Fees paid to unaffiliated third parties when borrower cannot shop
- Fees for required services from an affiliated provider
Exception: Zero tolerance fees can increase if there's a valid change of circumstance.
10% Cumulative Tolerance
These fees can increase by a cumulative total of 10%:
- Recording fees
- Third-party services the borrower can shop for (if borrower uses provider from lender's list)
- Third-party services the borrower cannot shop for
How 10% Tolerance Works:
| Fee Category | LE Amount | CD Amount | Difference |
|---|---|---|---|
| Recording fees | $100 | $115 | +$15 |
| Title insurance | $500 | $525 | +$25 |
| Title search | $200 | $200 | $0 |
| Total | $800 | $840 | +$40 (5%) |
In this example, the 5% increase is within the 10% tolerance - no cure required.
Unlimited Tolerance (No Limit on Increases)
These fees have no limit on how much they can increase:
- Prepaid interest
- Property insurance premiums
- Escrow amounts
- Third-party services if borrower selects provider NOT on lender's list
- Services not required by lender
Change of Circumstance (COC)
A change of circumstance allows the lender to revise the Loan Estimate and reset fee tolerances.
Valid Changes of Circumstance
| Type | Examples |
|---|---|
| Extraordinary event | Natural disaster, war, acts of terrorism |
| Changed circumstance | New information, borrower request, property issues |
| Eligibility change | Borrower no longer qualifies for initial terms |
| Borrower-requested change | Different property, loan amount, or product |
| Expired rate lock | Interest rate lock period ends |
| Delayed closing | Construction delays, seller delays |
Revised Loan Estimate Requirements
When a valid COC occurs:
- Revised LE must be delivered within 3 business days of receiving information
- Revised LE must be delivered at least 4 business days before closing
- After the 4th business day before closing, only CD revisions are allowed
Documentation Requirement
Lenders must document the reason for any change of circumstance in the loan file. This is crucial for compliance examinations.
Comparing LE to CD
At closing, the CD must be compared to the most recent LE to ensure fee tolerances are met.
What Happens if Tolerances Are Exceeded?
If fees exceed permitted tolerances, the lender must provide a cure to the borrower:
- Cure amount = Amount fees exceeded tolerance
- Cure timing = Within 60 calendar days after consummation
- Cure method = Cash refund, credit to borrower, or reduce loan balance
Calculating the Cure
Example of tolerance violation:
| 10% Tolerance Category | LE Total | CD Total | 10% of LE |
|---|---|---|---|
| Recording + Title Services | $1,000 | $1,200 | $100 |
- Permitted increase: $100 (10% of $1,000)
- Actual increase: $200
- Cure required: $100 (amount exceeding tolerance)
Key Timing Summary
| Document | Timing Requirement | Business Day Definition |
|---|---|---|
| Loan Estimate | Within 3 business days of application | Days office is open for business |
| Closing Disclosure | At least 3 business days before closing | All days except Sundays and federal holidays |
| Revised LE | Within 3 business days of COC | Days office is open for business |
| Revised LE deadline | At least 4 business days before closing | Days office is open for business |
Exam Tips for LE and CD
For the SAFE MLO Test, remember:
- Loan Estimate: 3 business days after application
- Closing Disclosure: 3 business days before closing
- Zero tolerance: Origination charges, transfer taxes cannot increase
- 10% tolerance: Recording fees, title services (when using lender's list)
- Unlimited tolerance: Prepaids, insurance, services not required by lender
- APR change >1/8% (fixed) or >1/4% (adjustable) = New 3-day wait
- Product change or prepayment penalty added = New 3-day wait
- Tolerance violations require a cure within 60 days
Within how many business days of application must the Loan Estimate be provided?
Which fees fall under the zero tolerance category (cannot increase from LE to CD)?
How many business days before closing must the Closing Disclosure be provided?
Which change would require a new 3-day waiting period after the Closing Disclosure is provided?