This is the year that mortgage loan documents are going to change for the better. On August 1st, documents are required to be better understandable by borrowers and not contain as much complex language. There will also be two new forms that are going to be required. One of them is a breakdown paper called a loan estimate and the other is a clothing disclosure. These two forms are going to replace the Settlement Statement, Good Faith Estimate and Truth-in-Lending form.
The forms were created by the Consumer Financial Protection Bureau (CFPB) to simplify the information presented at closing and help consumers to make mortgage comparisons. The Consumer Financial Protection Bureau is an independent federal agency that has the task of protecting consumers from bad banking, lending, credit and other financial practices. They were formed in 2011. This agency came to be because of the passing of the Wall Street Reform and the Consumer Protection Act.
The National Association of Realtors and others also contributed input to the forms. Now, lenders will be required to follow the three day deadline so that home buyers have all of the information well in advance of closing.
The three day requirements will apply to both the Loan Estimate and the Closing Disclosure. Buyers will get the Loan Estimate within three days of applying for the loan and they’ll receive the closing disclosure three days before they close. But Gary Ashton of Ashton Real Estate Group - RE/MAX ELITE says that this is where buyers need to be cautious. “You should carefully look over both the Loan Estimate and Closing Disclosure side by side,” Ashton said. “Look for any differences between the two that you weren’t already aware of.” Then, you can ask your realtor about them or find out just how why they were added to the second document.
Buyers will be able to follow the process much easier, because everything will be simplified and transparent, excluding wording that used to confuse buyers. The new forms have the interest rate, monthly payment and the closing costs right there on the front page which will allow them to more easily compare loans and choose the right one. Before this information was so readily apparent it could be difficult for buyers to figure out exactly what their contracts are saying and be able compare that information with the same information from another lender.
There is also going to be highlighting of important information. Before, information would get lost in the paperwork, and buyers wouldn’t even know it was there unless they had an advocate like a realtor that pointed it out. But now, the cost of the taxes that the buyer will be paying as well as the insurance will be highlighted for easy reading. Also, the information about the interest rates and the monthly payments is highlighted, including how these factors will change in the future.
The two new forms also give consumers some warning about features that they are looking to avoid. Lenders used to be able to hide these negative aspects in the paperwork. Things like prepayment penalties would be disclosed as well as any increase to the balance owed even if the monthly payments are made on time. Any negative information that most consumers are trying to avoid are highlighted so that they can easily see it and inquire about it.
One of the things that helps consumers compare the forms that they are getting and be sure that everything in in order before signing the paperwork is new regulation that makes it so that the Loan Estimate form looks the same as the Closing Disclosure. This allows someone to very easily look at the costs side by side and see if there are any disagreements between the two forms. If there is a discrepancy, consumers should ask their lender or real estate agent why.
This new regulation certainly is a giant step forward in helping consumers become better informed about the financial products that they are considering and becoming informed buyers so that they can make the very best decision for their financial future.
