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CFPB To Launch Plain Language Common Sense Mortgaging

This article is more than 9 years old.

The Consumer Financial Protection Bureau has promulgated new consumer disclosure rules effective 08/01/2015, designed to help consumers understand what they are buying when they get a mortgage. The new disclosures are integrated (CFPB speak for simplified), and come with no room for tolerance errors and strict post-application and pre-closing time frames.

Make no mistake, I am all for eyes-wide-open, full disclosure, lots of communication, there are no secrets mortgage financing, and the CFPB is introducing just that. I may not always agree with goings on at the CFPB but they absolutely got this right!

There are primarily two new disclosures, one at the front end of the mortgage getting process and one at the back end. The new front end disclosure is called the LE or Loan Estimate and it integrates and replaces the GFE (Good Faith Estimate) and the TIL (Truth-In-Lending) disclosures. It is make-sense organized, easy to read and understand, and tells the consumer exactly what kind of a mortgage they are getting.

The LE must be delivered to the borrower/consumer before they agree to proceed with the mortgage getting process. Three days before! No fees (application, appraisal, etc.), can be charged until a consumer has reviewed and acknowledged this disclosure and agrees to proceed. The LE reorganizes most of the information previously disclosed on the GFE and TIL, and replaces some marginally material numbers with an alternative view. For instance, the finance charge (total amount of interest paid over the loan term), has been replaced with the TIP (Total Interest Paid), which is the total amount of interest paid over the loan term as a percentage of the loan amount. Both numbers are formidable, just different views.

The CD or Closing Disclosure looks a lot like the LE, making it easier for the mortgage consumer to compare what they were offered with what they are getting. This alone is such a make sense idea that whatever adjustment growing pains the mortgage and affiliate industries experience at inception, are worth it. Much like the LE, the CD reorganizes information previously disclosed on the HUD1 Settlement Statement and replaces some marginally material numbers with an alternative view.

There are strict tolerances for differences between amounts disclosed on the LE and amounts disclosed on the CD, with the lender liable for any amount exceeding the prescribed tolerance. This will protect mortgage consumers from any undisclosed financial surprise or potential hardship at closing.

There are also strict timing requirements carved in stone for the delivery of both the LE on the front end and the CD on the back end. Three (3) days for each with no exception, which may force adjustments to how/when closings can be scheduled and will necessitate a reprogramming of the real estate, title, legal, maybe even moving industries.

The new Integrated Disclosures contain lots of good information that is well organized and easy for consumers to digest. And there is new information in the new disclosures that was not in the old disclosures, not revolutionary, mostly different that’s all. But the practical application of these new disclosures may stumble in the timing and the tolerance for errors, at least in the beginning.

The mortgage financing industry does not operate in a vacuum, it is part of a well- orchestrated ballet with many acts, real estate, title, legal, movers, etc., to name just a few. Substantive changes in one act will impact the rest of the performance, so there will be some growing pains.

That being said, these disclosures are a welcome change and should benefit mortgage consumers and mortgage lenders alike. Nicely done CFPB.