As of October 3,2015, a new Loan Estimate Form and Closing Disclosure Form will be implemented to replace the current disclosure forms that are required to be provided for consumers applying for a mortgage. How with this change affect closings going forward? What is different in the current forms? These answers and more will be revealed in Land Title's two-part technical bulletin on the new disclosures created by the CFPB (Consumer Financial Protection Bureau). Part Two will be available in February's technical bulletin.
Please visit www.ltgc.com/forms for a link to the current forms.
For more than 30 years, federal law has required that lenders provide two different disclosure forms needed to be done at or shortly before the closing of the loan. Two different federal agencies created these forms separately, under two federal statutes: The Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). It was found that the information on these forms overlapped, the language was inconsistent and that lenders and settlement agents often found them hard to explain and burdensome to provide.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) was signed into law in July of 2010. The law was created to protect consumers from many of the questionable practices used by members of the financial industry that led to the financial crisis in 2008.
As part of the Dodd-Frank Act, an independent agency was created to enforce and set clear, consistent rules for the financial services marketplaces.This agency was named the Consumer Financial Protection Bureau. The CFPB was directed to revamp the current forms used during real estate transactions to provide forms that help consumers understand the key features, costs and risks associated with the mortgage for which they were applying. Consumers, lenders, mortgage brokers and settlement agents were asked to give input on how to combine and improve these forms. The new disclosures were issued November 30, 2013 in a final rule that provided a detailed explanation on how the forms will need to be filled out and used.
The New Disclosures
Two new forms were created for most closed-ended consumer mortgage loans applied for as of October 3, 2015. The CFPB worked to develop forms that reconciled the differences of the current forms and combined several of the other mandated disclosures such as the appraisal notice and servicing application disclosure.
The first form is the Loan Estimate. It replaces the Truth in Lending Statement (TIL) and the Good Faith Estimate (GFE). This form provides a summary of the key loan and closing costs. It needs to be delivered to consumers within three business days after they submit a mortgage loan application. This form is a useful tool for consumers since it allows them to compare the costs and features of different loans.
The second form is the Closing Disclosure. It replaces the Truth in Lending Statement and the HUD-1 Settlement Statement. It provides a detailed accounting of the real estate transaction. It must be provided to consumers three business days before they close on the mortgage.
Benefits of the new forms
How will these new forms benefit the overall real estate transaction and the consumer? Here are just a few of the items that the CFPB found were beneficial with the changes:
1) Consumers understand the key information of their loan better including the risk factors, short-term and long-term costs of the loan, and what their monthly payment will be.
2) Allows for consumers to comparison shop on loan offers and closing costs. The new forms break down all the costs of the loan and costs of completing the mortgage transaction so the would-be-homebuyer or those refinancing are better able to comparison shop between different offers.
3) Avoiding costly surprises at the closing table. By providing three days for the consumer to review the loan terms and costs, it gives the consumers time to ask questions and negotiate over changes that have occurred.
For more information on the new forms, visit http://www.consumerfinance.gov/knowbeforeyouowe/.
Part Two of the bulletin will discuss the three-day rule further and explain more details of the new rule and what is involved with the change.
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