CFPB releases “Know Before You Owe” Final Rule

On November 20, 2013, the Consumer Financial Protection Bureau (CFPB) released the merged mortgage disclosure forms that they are calling “Know Before You Owe.” The new Loan Estimate and Closing Disclosure merge disclosures required from the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA), along with additional disclosures required under Dodd-Frank. Mortgage applications received on or after August 15, 2015, will require these forms be given to consumers. Consolidating the forms is intended to simplify the mortgage process for consumers and provide a better understanding all of the costs associated with mortgages.

What has changed?
The CFPB has consolidated multiple redundant, confusing and sometimes conflicting disclosure forms used throughout the lending process into two clear forms that even include instructions to clear up any confusion. You can see an example of the all the forms consolidated here.

The first form is the Loan Estimate. It will be provided three business days after a mortgage loan application is submitted and includes information like interest rate, monthly payments, costs to close the loan and cost of the loan over time. This document can also serve as an easy tool to compare different loan offers. View a sample here.

The Closing Disclosure is very similar to the Loan Estimate, and consumers are able to easily compare the two documents. It must be made available to the consumer three business days prior to closing and provides details on all costs of the transaction. Any major changes that occur after the closing document is provided to the consumer will result in an additional three day waiting period to close.

What is the industry saying?
According to an article from American Banker, the response from lenders has been generally supportive of the general concept of better disclosures. However, there has been some pushback about the actual details of the new forms. Some feel the forms have the potential to give borrowers “information overload,” while others feel that the rules around the disclosure forms are too restrictive. Concern over the inability to change charges, along with the extension of the three day waiting period for significant changes to the Closing Disclosure form have some lenders asking for more flexibility.

What’s your take on the changes? Will these consolidated forms streamline and simplify the mortgage loan process or provide too many limitations?

For more information on what the new rule will mean for lenders, check out the detailed summary released by the CFPB: Final rule on simplified and improved mortgage disclosures.