Tuesday, April 28, 2015 / by Vanessa Saunders
On August 1, 2015 mortgage regulations are changing once again in an effort to make the process of obtaining a mortgage and purchasing a home even more transparent to the buyer, and make it even easier to comparison shop for a mortgage. As part of the Frank-Dodd Act, the Consumer Finance Protection Bureau (CFPB) issued its final rule last November to integrate the Real Estate Investment & Procedures Act (RESPA) and Truth-In-Lending (TILA) regulations and disclosures. The rule will apply to all new mortgage application as of August 1st. The goal: avoid surprises at the closing table. The result? See the highlights below:
What types of transactions will be covered? The rule covers most closed-end consumer mortgages including 1 – 4 family residences, second homes and investment properties, purchases and refinances. The rule will not apply to reverse mortgages, home equity lines of credit, mortgages secured by mobile homes or homes not attached to a property, and to creditors who make less than 5 mortgage loans per year. Consumers will receive a new booklet at the time of application called “Your Home Loan Toolkit” which replaces the “Special Information Booklet” provided by mortgage lenders now. What other changes will we see? The most notable changes of this new regulation pertain to your mortgage disclosures and closing documents. Some important disclosures, such as the Good Faith Estimate, are being replaced by new, more detailed disclosures outlined below.
The Loan Estimate
The Loan Estimate will be the new disclosure provided to a buyer within 3 days of submitting a mortgage application. The Loan Estimate will replace the Good Faith Estimate and Truth-In-Lending disclosures provided now. The purpose of this new disclosure is to more clearly lay out the closing costs and loan terms. There will also be an additional, new calculation to facilitate comparison shopping – called TIP, “Total Interest Percentage”.
The Closing Disclosure
The Closing Disclosure will be the new disclosure combining the final Truth-In-Lending Disclosure and the HUD1 Settlement Statement. This disclosure is similar to the Loan Estimate and clearly details the costs of obtaining a mortgage and final loan terms. While the new Loan Estimate and Closing Disclosure have similar formats, it is far different from the HUD1 Settlement Statement. Most notably, the closing fees are organized in groups, in alphabetical order. Contact information for the mortgage originator, real estate broker(s) and settlement agent will be listed on every Closing Disclosure. More information regarding escrow account, loan disclosures, and adjustable rate mortgages (when applicable), are contained within this one disclosure. The final Closing Disclosure must be provided to the consumer 3 days prior to closing. Any change that falls into the following three categories will require the disclosure to be reissued and the 3 day waiting period to start over: addition of a prepayment penalty, change in loan program, or change in APR by .125% for fixed rate mortgage loans or .250% for adjustable rate mortgage loans. Some buyers will be able to request a waiver of the 3 day waiting period if have a “bona fide medical emergency”. Your lender will best be able to guide you if this situation should arise.
In addition to redesigned disclosures, the timing of the mortgage process will be affected. It will be wise to anticipate slightly longer closing time frames from the date a contract is signed or you begin your mortgage application. Experts in the industry recommend anticipating extending the closing time period by about 15 days, meaning 30 day contract should be written for 45, and 60 day contracts should be written for 75. Regular communication with your lender and settlement agent will be important to stay ahead of any delays that will be caused by this change in regulation. It is industry-wide and will be a major adjustment for consumers, real estate agents, lenders and settlement agents. More information regarding the rule and samples of the Loan Estimate and Closing Disclosure can be found here: www.consumerfinance.gov/regulations/integrated-mortgage-disclosures-under-the-real-estatesettlement-procedures-act-regulation-x-and-the-truth-in-lending-act-regulation-z/