Final Disclosure Forms Ready; Lenders Have Almost Two Years to Implement

As expected the Consumer FinancialrnProtection Bureau (CFPB) has released the “easier-to-use” mortgage disclosurernforms that were mandated by the Dodd-Frank Wall Street Reform and Consumer ProtectionrnAct.  The new rule requiring the form wasrnrolled out to coincide with a field hearing being held by the Bureau today inrnBoston.</p

The new “Know Before You Owe” forms willrnreplace the existing federal disclosures in laying out the terms of a mortgagernfor a homebuyer.  CFPB said they will “helprnconsumers understand their options, choose the deal that’s best for them, andrnavoid costly surprises at the closing table.” rnUse of the new forms will begin no later than August 15, 2015.</p

Under previous rules that have beenrnfederal law for more than 30 years lenders were required to deliver tworndifferent and overlapping disclosures to potential borrowers within three daysrnof receiving a mortgage application.  Atrnclosing the law again generally requires two forms with what CFPB calledrnduplicative and sometimes confusing information.  Dodd-Frank recognized the need to simplifyrnand streamline the information and charged CFPB with doing so.</p

Thernfirst new form, the Loan Estimate, is to be given to consumers within threerndays of receipt of their mortgage application. rnIt replaces the early Truth inrnLending statement and the Good Faith Estimate, and provides a summary of thernkey loan terms and estimated loan and closing costs. Consumers can use this newrnform to compare the costs and features of different loans.</p

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The second form, the LoanrnDisclosure, must be given to the consumer three days before closing on arnloan.  It replaces the final Truth inrnLending statement and the HUD-1 settlement statement, and provides a detailedrnaccounting of the transaction. </p

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The two forms use plain language andrna design intended to make it easier for consumers to locate key informationrnsuch as the interest rate, monthly payments, and costs required to close thernloan.  They also make it easier torncompare the initial estimate on the first form with the final costs on thernsecond.  </p

The final rule regarding the formsrnrequires their use by lenders, formalizes the dates for delivering the forms,rnand limits the extent to which the final deal can vary from the original loanrnestimate.  The new forms are available inrnEnglish and Spanish.</p

 “Taking out a mortgage is one of the biggestrnfinancial decisions a consumer will ever make. Our new ‘Know Before You Owe’rnmortgage forms improve consumer understanding, aid comparison shopping, andrnhelp prevent closing table surprises for consumers,” said CFPB Director RichardrnCordray. “Today’s rule is an important step toward the consumer having greater controlrnover the mortgage loan process.”</p

CFPB says it conducted more than twornyears of extensive research, testing, and review to find out how best torndisclose information in a way that consumers can understand. The Bureaurnreceived feedback from consumer testing, through the Bureau’s website, from arnsmall business review panel, through public comments on the proposed rule, andrnfrom other supplemental outreach.  CFPB had a number of goals it hoped tornachieve with the new forms:</p<ul class="unIndentedList"<liHelp consumers identify risky loan featuresrnsuch a prepayment penalties, larger-than-usual periodic payments, andrncomplicated loan structures.</li<liHelp them understand both short- andrnlong-term costs.</li<liMake clear what monthly paymentsrnwill be initially and the potential minimum and maximum payments over the lifernof adjustable rate loans.</li<liEnable better comparison shoppingrnboth for loan terms and closing costs.</li<liAvoid costly surprises at thernclosing table by allowing easier comparisons between the estimated and finalrnterms of the loan.</li<liGive consumers more time to considerrnchoices without the pressure of the closing table.</li<liLimit closing cost increases.</li</ul

Arnfactsheet about the “Know Before You Owe” mortgage disclosures is available at:rnhttp://files.consumerfinance.gov/f/201311_cfpb_factsheet_kbyo_mortgage-disclosures.pdf.   </p

The finalrnrule is available at:  http://files.consumerfinance.gov/f/201311_cfpb_final-rule_integrated-mortgage-disclosures.pdf.rn 

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