New Disclosure Rules for Mortgages
New Disclosure Rules for Mortgages
Home loan offers should be easier to decipher since Oct. 3, since mortgage lenders were required to begin using new consumer disclosure forms that explicitly break down the costs and terms associated with a loan.
Instead of receiving four different disclosures in various formats, as currently required under the Truth in Lending and Real Estate Settlement Procedures Acts, borrowers will receive just two. Intended to make the loan process more transparent, the new forms, created by the Consumer Financial Protection Bureau, look similar and are much easier to understand.
They are just one aspect of regulatory changes dictating how the real estate and lending industries must handle disclosures. Lenders have been gearing up for the rule change for more than a year. For borrowers, the shift will be much simpler.
According to the new rules, disclosures must be delivered on a timely schedule. The initial Loan Estimate must be provided to borrowers no later than the third business day after they submit a loan application.
Its first page shows the loan amount and interest rate, what the borrower’s monthly payment would be, estimated taxes and insurance, and how much cash is required to close.
The Closing Disclosure, outlining the final transaction, must be provided to borrowers at least three business days before the closing date. This is a major change, as borrowers typically don’t see the closing documents until they are ready to sign.
In remarks to the National Association of Realtors earlier this month, Richard Cordray, the director of the Consumer Financial Protection Bureau, said the three-day window was intended to give borrowers time to compare the Closing Disclosure with the Loan Estimate and ensure the terms are the same.
“Our form makes that comparison very obvious, which minimizes the potential for nasty surprises such as bait-and-switch increases in rates, fees or settlement costs,” Mr. Cordray said.
Borrowers should be aware that under the new rules, if they decide to change loan products at the last minute — for example, switch from a fixed to an adjustable-rate loan — the closing date must be extended by an additional three days to allow for review of a new Closing Disclosure. Borrowers may not waive that three-day window.
To avoid such a delay, borrowers should make an informed decision early on about which product is going to work best for them, said Diane Evans, the president of the American Land Title Association, which represents the title insurance industry.
Borrowers might also ask their real estate agents or lawyers for advice on which lenders are best equipped to handle the regulatory shift, said Tammy Felenstein, the executive director of sales for Halstead Property in Stamford, Conn. “There’s going to be a little bit of a learning curve in the beginning,” she said. “Go with a lending institution that has prepared for these changes and knows what they’re doing.”
Consumers should be prepared for longer closing times as the industry adjusts to the new process. Under the rules, lenders, title companies, real estate agents and insurance representatives will have to come together much sooner in the process to get disclosures out in time. This could lengthen closing times over the next few months as they all adapt, Ms. Evans said.
Borrowers can help things along by getting their documents in quickly and scheduling inspections early on.
Some real estate agents are planning to write contracts with 45-day closings, instead of 30, Ms. Evans said, adding, “if you’re prepared for a little more time and it takes less, everybody leaves a little happier.”
I am going to get my hands on some sample copies of the new disclosures as well but I am sure you will find this information helpful in the interim.
For additional information or quesitons; please contact me I will be happy to help!
Tara Roman Sacco | Mortgage Loan Officer
NMLS # 784676
Bethpage Federal Credit Union
899 S. Oyster Bay Road, Bethpage, NY 11714
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