Lat week, the Consumer Financial Protection Bureau (CFPB) finalized two changes to the “Know Before You Owe” mortgage disclosure rules. The new rules address when mortgage borrowers will receive updated disclosures after locking their rates, and how consumers receive information regarding certain construction loans.
In order to simplify an old 30-year-old rule that required lenders to deliver two different disclosures to borrowers within three business days after receiving a loan application, and another two disclosures at the closing stage; in 2013, the CFPB introduced new mortgage disclosure forms under the Dodd-Frank Wall Street Reform and Consumer Protection Act, where otherwise the disclosures had contained duplicate and sometimes confusing information.
According to the CFPB, this new process is intended to help consumers understand their best options, and assist them in deciding the best deal for them to avoid costly surprises at the closing table.
According to the CFPB, under the new mortgage rules, creditors will need to provide a revised Loan Estimate within three business days after a borrower locks in a floating interest rate. The old rule required lenders to provide the revised Loan Estimate on the date the rate is locked. Allowing three business days for the new Loan Estimate will give creditors enough time to provide new disclosures without having to reduce flexibility that consumers may have today in locking their rates.
The second change is a minor addition on the Loan Estimate form for mortgages that involve new home construction. These construction loans often take longer to settle than other loans, and the estimated charges can change. Today’s change creates a space on the Loan Estimate form where creditors could include language informing consumers that they may receive a revised Loan Estimate for a construction loan that is expected to take more than 60 days to settle.
The CFPB Director Richard Cordray had said, “The new ‘Know Before You Owe’ mortgage forms improve consumer understanding, aid comparison shopping, and help prevent closing table surprises for consumers. Today’s minor changes will make it easier for creditors to comply with the disclosure rules while maintaining these important new consumer protections.”
The rule will go into effect on August 1, 2015.