What are the major federal changes to the residential mortgage forms and loan rules will take place starting October 3rd this year?For over two years the real estate, mortgage, and title industries have been preparing for the implementation of the rules imposed by the Dodd Frank Act. The Consumer Financial Protection Bureau (CFPB) is tasked with implementing the New Rule. The CFPB’s goal is to aid consumer understanding of the often technical real estate disclosures while maintaining compliance with existing requirements like the Real Estate Settlement and Procedures Act (RESPA) and the Truth in Lending Act (TILA).
Simply put: THE CFPB is changing the process by which consumers receive their disclosure forms when purchasing a home, and they are making the forms easier to read by changing the language and the graphical layout of the forms themselves.
Mortgage companies are now mandated to send the consumer a “Loan Estimate” within three days of the consumer providing very basic information to them. Six pieces of information to be exact: their name, social security number, income, desired loan amount, property value, property address. The Loan Estimate will combine today’s Truth in Lending form and the initial Good Faith Estimate into one easy to read form that will help consumers understand all of the costs of the transaction.
Another new form that is introduced with the new Rule is the Closing Disclosure.
Built from the same principals as the Loan Estimate, the Closing Disclosure replaces the final GFE and HUD form, again making the cost of the transaction easier for the consumer to understand, and is to be received by the consumer no less than three days prior to the consummation of the loan. The goal is to give the consumer time to compare the figures on the closing disclosure with those on the Loan Estimate that was provided upfront. With the implementation of this law there are also certain fees that cannot change, or can only change a certain amount. The lenders origination charge for example cannot change, and the attorney’s closing fee cannot vary by more than 10% than the figure that was provided on the upfront Loan Estimate.
It’s important to note, that the three days referenced above is a mandatory waiting period, so if there are any changes to the transaction fees that exceed the tolerances set by the new Rule that a new 3 day waiting period may be declared (as mandated by the Dodd Frank Rule) and closing dates could potentially be pushed back. With so many parties coming together to meet mandatory deadlines, it is important for consumers to choose a real estate team that works closely together (i.e. an attorney, a realtor, and a mortgage banker) in order to assure that there is good processes and communication to assure that the deadlines that they set for the issuance of these new forms is met and their closing dates remain firm.
The new Rule goes into effect for new loan applications as of October 3rd.