October Brought New Mortgage Regulations Designed to Help Borrowers
On October 3rd of this year we experienced big changes in mortgage regulations aimed at helping consumers understand the terms of their mortgages before signing the paperwork.
The changes are implementation of a five-year-old law that has forced mortgage lenders to overhaul the way they process mortgage loan transactions. The changes were prompted by the 2010 Dodd-Frank financial law.
Basically the changes are designed to simplify forms long required by the federal government that disclose loan terms, such as a mortgage’s interest rate and prepayment penalties. The rules also require that consumers see the final terms at least three business days before closing, a change meant to ensure they have time to understand what they’re agreeing to before signing on the dotted line.
The Consumer Financial Protection Bureau boiled down four different disclosure forms into two easily comparable documents: the Loan Estimate and the Closing Disclosure. The Loan Estimate replaces the Good Faith Estimate and the initial Truth-in-Lending disclosure, while the HUD-1 Settlement Statement and the final Truth-in-Lending statement are merged into the new Closing Disclosure. Instead of bundling the costs the new forms show exactly how much borrowers pay for each service separately, making comparisons easier.
To give borrowers time to understand the documents, they will receive an initial Loan Estimate no later than three business days after applying. The Loan Estimate must include the amount of the loan, interest rate, monthly payment, estimates of taxes and insurance, and the amount of cash required to close.
Lenders are also required to provide a five-page Closing Disclosure, outlining the final costs, at least three business days before the closing date. Lenders will face a penalty if they don’t give borrowers the required three-day period to review the documents. This will require delays if there are any changes made to the loans.
These new forms and regulations should ensure that borrowers have time to understand the details of the mortgage, have time to ask questions and experience no surprises when they attend the closing and finalize the home purchase.