No more mortgage mumbo-jumbo or surprises: Homebuying will become easier next week with new upfront forms

CLEVELAND, Ohio -- The home-buying process is finally getting a little bit easier.

After years of fanfare, lenders next week must offer new forms to potential borrowers to help them better understand their loan options, understand what size of loan they can afford, and shop different loan offers.

The changes are part of new regulations and the Know Before You Owe program designed by the Consumer Financial Protection Bureau.

Coinciding with the new disclosure forms that borrowers must see starting Oct. 3, consumers this week are getting access to new tools online to help them sort through the mortgage process.

Getting a mortgage is an ordeal and often feels "like a mystery," CFPB Director Richard Cordray said in a written statement. "It is time consumers have more power in the mortgage process, and our new forms and online tools will help make that a reality."

The Owning a Home tools:

Online interactive tools, definitions and sample forms can be found at:

The changes are part of the Dodd-Frank Act passed by Congress five years ago, which required regulators to make life easier for homebuyers. The CFPB studied the issues for a few years before settling on the new disclosure documents, and gave lenders time to be able to comply with the new laws. Consumers who are applying for a mortgage starting Oct. 3 must receive the new disclosures. There are a few types of mortgages that are exempt. The new forms are aimed at helping consumers sift through their options, make an informed decision and avoid surprises on closing day.

Two big keys:

  • When consumers are shopping banks, every lender must provide a Loan Estimate that spells out details of the loan, fees and closing costs. Every lender must outline a mortgage offer in the same way, so that consumers can do apples-to-apples comparisons.
  • The lender that is chosen must -- three business days before closing -- give the consumer a Closing Disclosure form. This form spells out the final numbers and the three-day window gives consumers a chance to review the numbers, make sure it's what they were promised, question any changes and negotiate any issues.

The lack of any required Closing Form days before closing was one of the big problems that helped cause the mortgage crisis that spanned 2005 through 2008. If the terms of a loan or the fees changed and consumers were blindsided with surprises on closing day, they generally had only two choices: sign, or walk away from the home they were dreaming of owning.

Bill Cosgrove, chairman of the Mortgage Bankers Association and CEO of Union Home Mortgage Corp. in Strongsville, has said the new process will peel off the "mumbo-jumbo" language that for years has intimidated consumers, no matter their level of education.

The documents will "use plain language and were designed to make it easier for consumers to locate key information such as the interest rate, monthly payments, and the costs to close the loan," according to the CFPB.

Over the decades, regulators required lenders to disclose dozens and dozens of pieces of information and consumers often would be asked to review 60 or 80 pages of documents laden with legalese. Ironically, the government's quest to make sure consumers had enough information left them with so much that they were overwhelmed.

In one example of the problems arising from the flurry of paperwork, borrowers have traditionally received two documents from two different federal agencies. The documents were overlapping and confusing to many consumers. The same was true for the two major forms that consumers received at closing.

The CFPB rolled out the beginnings of "Owning a Home" online tools in January. The new tools introduced this week include:

  • Guide to the mortgage milestones: The website walks through different phases of the mortgage process and gives consumers advice about questions to ask, things to know and pitfalls to avoid throughout the different steps.
  • Monthly mortgage payment worksheet: The site provides a
  • Interactive sample of the new Know Before You Owe mortgage forms: The site features interactive samples of the Loan Estimate form and the Closing Disclosure form. These forms can help borrowers double-check the documents they were given. They also provide definitions for terms a consumer may not understand, point out issues that may cause problems.

The Owning a Home tools and forms can be found at: http://www.consumerfinance.gov/owning-a-home

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