Traditionally, Federal law has required lenders to provide two different disclosure forms to consumers applying for a mortgage. However, these forms were complex and confusing not only to consumers but also difficult to explain by the lenders. As a consequence, the Consumer Financial Protection Bureau (CFPB) has released new guidelines which will become effective August 1, 2015. These forms will replace the Good Faith Estimate, Truth-in-Lending statement and the HUD-1.
The first new form is the Loan Estimate, designed to provide consumers a better understanding of the mortgage loan for which they are applying. The form contains loan terms, projected payments, costs at closing table, and a link for consumers to obtain more information. Consumers can also use this form to compare the costs and features of different loans. The Loan Estimate must be provided to consumers, either by hand or placed in the mail, no later than three business days after they submit a loan application. If circumstances have changed, a revised Loan Estimate must be delivered or placed in the mail within three business days of the lender’s knowledge of a changed circumstance. However, the revised form must be received by the borrower no later than four business days before consummation of the loan.
The Closing Disclosure form provides a list of disclosures that will be helpful to consumers in understanding all of the costs of the transaction. The Closing Disclosure must be provided to consumers three business days before they close on the loan. If the creditor makes significant changes between the time the Closing Disclosure form is given and the closing, a new form and an additional three business-day waiting period must be provided to the consumer. Less significant changes can be disclosed on a revised form which must be received by the consumer at or before closing, without delaying the closing.
In order to protect consumers, regulations now require full disclosure in advance of any circumstance that may lead to additional charges at the closing table. These new measures limit the circumstances in which consumers can be required to pay more for settlement services. Unless an exception applies, charges for the following services cannot increase: (1) the creditor’s or mortgage broker’s charges for its own services; (2) charges for services provided by an affiliate of the creditor or mortgage broker; and (3) charges for services for which the creditor or mortgage broker does not permit the consumer to shop.
Charges for other services can increase, but generally not by more than 10 percent, unless an exception applies. Examples of these exceptions include, situations when: (1) the consumer asks for a change; (2) the consumer chooses a service provider that was not identified by the creditor; (3) information provided at application was inaccurate or becomes inaccurate; or (4) the Loan Estimate expires.
The implementation of the new forms will significantly impact the industry but they will provide consumers useful information, protection, and transparency. The forms use clear language to make it easier for consumers to locate key information, compare different loan offers and ultimately make an informed decision.