by Laura Matiz
The Consumer Financial Protection Bureau’s (CFPB) Know Before You Owe mortgage initiative aims to help consumers make informed mortgage choices and reduce confusion by providing easy to compare loan options and costs. The initiative simplifies and consolidates some of the required loan disclosures while changing the timing of some activities in the mortgage process. The new rules took effect on October 3, 2015 and applies to purchase and refinance mortgages from all lenders. It is important for consumers to question the preparedness of any lender they are considering in meeting all the new regulations. These new procedures should help consumers make one of the most important financial decisions of their life an informed decision.
A key simplification is that the CFPB has combined four disclosure documents into two while redesigning the application and closing pages to mirror each other for easier comparison.
Diagram source: Consumer Financial Protection Bureau
The CFPB provides an interactive detailed, section-by-section explanations for the Loan Estimate Explainer and the Closing Disclosure Explainer. It has also created this video explaining the new process.
The Loan Estimate
Lenders must provide a loan estimate within three business days once the consumer triggers the request by providing a required set of personal information, including the loan amount and property being considered. Lenders can no longer require additional documentation, making it easier to get multiple loan estimates. Lenders can't charges fees other than reasonable fees for credit checks. A loan estimate can be used by the consumer to understand the loan parameters, but doesn't imply an approved loan. Once the consumer is ready to proceed, he/she must inform the lender, at which point the lender can begin the process and charge fees. In fact, the lender can only request payment information after the intent to proceed is given.
The Closing Disclosure
Under the new rule, lenders must provide the new closing disclosure three business days before the scheduled closing. Much of this information used to be provided for the first time at the closing, a time not conducive to deliberate and careful examination of the figures and fees. It is important to note that most changes, as long as they don't alter the basic terms of the deal, will not require a new three-day review period. The only changes that require a new disclosure and a new three-day review period are:
Download a copy of the CFPB's step-by-step guides with interactive worksheets and conversation starters designed to deepen understanding of the mortgage market.
I am happy to help any of my customers understand and take advantage of some of the consumer-friendly changes to the process. Please reach out.