Recently, the Consumer Financial Protection Bureau (CFPB) issued its final rules creating new mortgage disclosure documents, which are scheduled to be implemented on August 1, 2015.
The final rules combine various RESPA and TILA regulations to create all-new disclosure documents. These documents were devised in an attempt to be more helpful to consumers, while integrating information from a myriad of existing sources, to reduce the overall number of documents needed to close on real estate.
One major difference with respect to the new regulations is that, when applying for a loan, the new Loan Estimate document replaces the Truth-in-Lending Disclosure (TIL) and the Good Faith Estimate (GFE). Another major change occurs on the opposite end of the transaction—the new Closing Disclosure will replace the Final TIL and HUD-1.
The newly devised Loan Estimate will be used more by the consumer as a comparison shopping tool than anything else. It is a document that will be provided to the consumer by the lender, and will be based entirely on unverified information provided by the consumer. No collection of any documentation is required. Therefore, consumers will be able to receive multiple Loan Estimates covering a variety of loan options, allowing them to compare loan scenarios across various lenders. The Loan Estimate will give consumers helpful information about the details of the lender’s expectations by providing information about the costs and risks of the loan.
The loan application will also be an abbreviated process for the consumer, as it will only require that six items be furnished to the lender: 1) name, 2) Social Security Number, 3) income, 4) property address, 5) estimate of property value, and 6) mortgage amount requested. Once the six items are collected, lenders are not permitted to require other items before issuing a Loan Estimate, as had been allowed previously before issuing TIL disclosures and/or GFEs.
There will also be more uniformity of the Loan Estimate throughout the marketplace, because, in all cases, the Loan Estimate must be delivered within three business days of taking an application. No fees can be collected and no Intent To Proceed can be requested until an applicant has received the Loan Estimate.
The Closing Disclosure will now replace the Final Truth In Lending Statement and the all-familiar HUD-1 (settlement statement). Of even further impact to lenders, and closing agents, the Closing Disclosure will need to be received by the consumer three business days before loan closing, instead of the current one-day requirement, giving consumers more time to compare the Closing Disclosure with the information on the Loan Estimate. It also will provide settlement agents with more time to prepare for the closing. In addition to the longer lead time, the Closing Disclosure will now be much less likely to be revised, as there are fewer reasons that this would be permissible. Specifically, a replacement Closing Disclosure, and an additional three business day waiting period, is required only if: (1) There is a change of more than 1/8 percent in the APR; (2) The loan product has changed (e.g. fixed rate has changed to adjustable rate); or (3) A prepayment penalty has been added. Thankfully, however, less significant changes can be disclosed at or before closing without triggering an additional three business day waiting period.
There are a several key features to the Closing Disclosure that seem to provide borrowers with useful information in a very simple manner. For example, it offers the consumer with an alphabetized list of settlement services fees, and fee amounts for services that a consumer does not shop for, such as appraisal or pest inspection fees. All of these revisions seem that they will provide the consumer with early notification of all the costs associated with the transaction, which should result in the consumer having earlier warning about any cash they will need to bring to the loan closing.
These new regulations appear to place a lot of burden on lenders. For instance, lenders will need to provide a cost estimate to consumers before any substantial information is collected from the consumer. However, the lender is certainly not rewarded for its generosity—it merely results in a situation where the consumer can provide a series of Loan Estimates at no cost to themselves. So, even after providing its costs, the lender will have no certainty, whatsoever, that the consumer has any sincere interest in becoming their customer. It appears to the author, therefore, that lenders will need to find a way to initiate the process, via the Loan Estimate, at little to no cost to the lender. If the process does progress, however, lenders must now be ready to close three days before the consumer, which of course is a significant shift of power in favor of the consumer. As often is the case, however, this author has little doubt that lenders and consumers, alike, will find a way to make create a better experience for all.