Wednesday, December 4, 2013

New Mortgage Disclosure Forms to Roll Out In August 2015


The shorter forms, set to be adopted by the Consumer Financial Protection Bureau, will demonstrate buyers more evidently the terms and cost of a home loan.

The federal government’s consumer financial watchdog will necessitate lenders to issue shorter, easier-to-understand mortgage disclosure forms to home buyers that more noticeably show the costs and terms of the loans.

The Consumer Financial Protection Bureau plans to issue the rule Wednesday, November 20, subsequent through on what was an initiative launched in 2011 as the then-fledgling agency’s first major action.  

The early Know Before You Owe forms were welcomed by consumer and industry groups as a development more than the more intricate disclosures essential under federal law for more than 30 years.  The bureau said the new forms would make it easier for home buyers to compare loan offers.

“Taking out a mortgage is one of the biggest financial decisions a consumer will ever make,” said Richard Cordray, the bureau’s director. “Our new Know Before You Owe mortgage forms improve consumerunderstanding, aid comparison shopping and help prevent closing … surprises for consumers.”

Lenders will be mandated to use the new forms, available in English and Spanish, starting Aug. 1, 2015.

The forms will be given to potential home buyers when they apply for a mortgage and when they close on the loan. They will make available the detailed information like the estimated monthly principal and interest payments, closing costs and any prepayment penalties or balloon payments.

The latest loan estimate form and the closing disclosure form use large and bold type for important information like the interest rate and feature highlighted headings and terms to make them easier to read.

Lenders will be obliged to provide the new closing disclosure form to home buyers three days before the closing.  That would give borrowers time to read and understand the information before the loan closes.  Lenders will not be allowed to change the fees and costs on the form at the closing “unless there is a legitimate reason,” under the bureau’s new rule.  

The bureau assembled public and industry feedback on the forms after introducing them in May 2011.  Testing showed that consumers using the new forms were better able to answer questions about a proposed loan and know whether they would be able to afford it, the bureau said.  

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