Mortgage Lenders To Begin Providing New Documents

The rule change, called the “Know Before You Owe” mortgage disclosure, will require lenders to provide to consumers an easier-to-use disclosure form for home loans three days before closing that clearly shows the loan amount, interest rate and monthly payment. The consumer will use those three days to review the forms and ask any questions that might come up.

Mortgage applications filed before Oct. 3 will not be affected by the new rule. Only those filed on or after Oct. 3 will fall under the new guidance.

Jerry Phillips, vice president of Mortgage Services at Jackboro National Bank in Wichita Falls, said the change is a “very admirable goal” for the Consumer Financial Protection Bureau. But like changes in the past, it will take some getting used to.

“Conceptually, the whole thing is fine and there’s not anything wrong with the document,” he said, adding the change will also require a change in and learning new software. “It’s going to take the industry a while to catch up to the spirit of the (rule change) just because software companies have spent fortunes building the software packages they have” and will have an entirely new system to work with.

During the three-day review period, there are only three reasons a new three-day review would be required: If the annual percentage rate for a fixed rate is 1/8 of a percent higher than the agreed upon rate, or 1/4 of a percent for adjustable rates; if a prepayment penalty is added; or if the type of loan changes, such as switching from a fixed to an adjustable-rate mortgage loan.

Part of the change also requires combining two forms, which are the Truth in Lending Act form and the Real Estate Settlement Procedures Act form. The first page of the new form, Phillips said, will feature the information every borrower really wants to know — how much they will pay monthly.

“They’ve designed a form that says here’s your payment and here’s how much money you have to round up, right there in bold figures on Page 1,” he said.

With the change also comes a higher level of responsibility for the lender to get information on the loan estimate for as close to the final numbers as possible. The CFPB said someone has to be responsible for the new form and make sure all the is correct, and made lenders the accountable party.

Along with that accountability comes penalties if the law is violated.

The CFPB can:

• Penalize a lender up to $5,000 daily for any violation of the new rule.
• Penalize a lender up to $25,000 daily if a person “recklessly engage” in a violation of the consumer protection law.
• Penalize a lender up to $1 million daily if a person knowingly violates the law.

Kolter Lukert, president and chief executive officer of Guarantee Title, said consumers should expect a little longer closing, or consummating, process than before.

While closing procedures will be a little more tedious, it helps out borrowers in the end.

“It’s forcing us to be ready before the people come to our office,” he said. “The rule states that there is a three-business day before consummation review period, meaning this closing disclosure form has to be worked up and completely approved by the lender and delivered to the borrower three business days ahead of closing.”

Lukert said the new rule also requires all parties involved in the process to work more closely as a team, including lenders, real estate agents, title companies, surveyors and inspectors, for example. That’s why it will also be important to use local lenders, agents and title companies instead of do-it-yourself home mortgage avenues, he said.

Phillips said another intention of the rule is to get potential borrowers to shop around for the best rate. He said they were encouraged under the previous rule, but shopping for the best deal is confusing, and some would go to someone they knew or were referred to for the loan. The new form will enable consumers to get loan estimates from multiple lenders for a side-by-side comparison of the offers.