Upcoming Changes To Mortgage Lending Disclosures and How They Will Impact You
By Doug Goelz, Mortgage Services
Effective August 1, 2015 the Consumer Financial Protection Bureau (CFPB) will institute some new disclosures that are intended to make the mortgage process more transparent and less stressful for consumers. The changes include some new forms to replace existing disclosures, some technical changes to when initial disclosures must be sent, less tolerance for fee increases during the loan process, and most importantly, required disclosure periods before loan documents can be signed.
Here are the most significant changes for borrowers in our market:
LESS TOLERANCE FOR FEE INCREASES AFTER THE INTIAL DISCLOSURE
Within 3 days of submitting an application, a borrower must receive a new disclosure, the Loan Estimate (LE), of estimated charges associated with the new mortgage. (For readers familiar with mortgage disclosures: the new LE will replace both the current Good Faith Estimate (GFE) and initial Truth-in-Lending disclosures (TIL)). Almost all of the fees for services on the new LE cannot be any higher at closing, so there will be a need to include potential chargesthat are possible, but not expected (e.g., charges from HOAs or management companies for Condo Questionnaires, charges for Evidence of Insurance from insurance agents, add-on fees for rush and complex appraisals). Previously, there was some tolerance for additional expenses that arose during the process, but not disclosed initially. As of August 1, 2015, for almost all charges, if the charges are not on the original LE, they cannot be collected at closing. So, borrowers will tend to get an inflated estimate of costs at the beginning of the loan process. Of course, if charges included on the LE are NOT incurred during the process, they will not be charged at closing.
MANDATORY REVIEW PERIOD BEFORE LOAN DOCUMENTS CAN BE SIGNED
Near the end of the loan process, borrowers must receive a new disclosure, the Closing Document (CD). (For readers familiar with mortgage disclosures: the new CD will replace the current HUD-1 form and final Truth-in-Lending disclosure (TIL)). The CD will provide the list of all items to be paid at closing, including all fees for services, plus prepaid interest, taxes, impounds, and insurance. The items included on the new CD are identical to the items currently disclosed, but borrowers must be given 3 business days to review the CD, after they receive it, before they can sign loan documents. The result: the 3 day review period will add 3 days to the closing schedule of any escrow.
For refinances, there already is a 3 day rescission period AFTER a borrower signs loan documents before a loan can close. So, with the new rules, it will be at least 7 business days after a CD is issued before a refinance loan can close.
Practically speaking, the 3 day review period will have the following impact:
- Borrowers will have to sign and return a CD they receive electronically before the 3 day waiting period begins.
- Escrow periods will need to be adjusted for the new 3 day review period. If there is financing on a purchase, and with refinances, escrows will get a little longer.
- Lock periods for rates will need to be adjusted for the longer escrows. Since there is an additional charge for longer lock periods (e.g., a 30 day period compared to a 21 day period), and a charge if a lock needs to be extended, borrowers may end up paying more for their rate lock due to the new 3 day review period.
Lenders and escrow companies are still working on implementation of the changes, so the mechanics have not all been worked out. Nevertheless, as with other significant changes in mortgage lending rules in the past several years, all parties involved have been able to adapt and business has continued.
Questions? Feel free to get in touch with me at 415-730-4665 or email@example.com