Disclosure Changes

Sarah Regensdorf has seen the future of consumer mortgage lending rules – and it includes less paper and more transparency.

Regensdorf, a Realtor with Town Real Estate in Fort Lauderdale, is preparing for the much-anticipated Consumer Financial Protection Bureau’s final rules for integrated mortgage disclosures.

When they become effective on Aug. 1, a host of common practices and paperwork will change or converge. New “Know Before You Owe” forms will replace current federal disclosure forms to help consumers better understand a mortgage and improve loan comparison shopping. Used wisely, the new documentation and disclosures will help consumers identify their risk factors, any pre-payment penalties or balloon payments, negative amortization, or minimum payments that that don’t cover interest, and a variety of other costs.

The rules will integrate a variety of common forms now required under the Truth-in-Lending Act (TILA) and Real Estate Settlement and Procedures Act (RESPA). The Good Faith Estimate and Truth In Lending disclosure consumers once received will be replaced by a loan estimate, which must be presented to prospective borrowers three business days after they apply. The venerable HUD-1 and final Truth In Lending disclosures will be replaced by a Closing Disclosure. Most documents must be made available to borrowers at least three days before closing. The forms also will be available in Spanish.

Home buyers will have more time to review mortgage offers, and will have less pressure of poring over confusing documents at the closing table.

“The forms look really user friendly. For first-time homebuyers, it’s top down. The information they want to know is all there, interest rates and monthly payments,” Regensdorf says. “This will help them look at the total picture, total cost of the loan when they’re shopping. It will make the closing costs very digestible.”

Not all Realtors and lenders are pleased with the changes, which in most cases will require new, federally compliant software to generate loan origination and other documents. Some lenders may be challenged to meet the various new deadlines, especially if borrowers are slow to deliver such supporting documents as pay stubs and W-2s, bank account statements, tax returns and the like, says David O. Norsoph, Esq., MBA, a partner with Norsoph, Alcalay & Orner LLP, a law firm in Fort Lauderdale and Boca Raton. It’s also unknown how the new timelines could impact transactions with foreign buyers, he says.

Though the industry has had almost two years to put the technology in place and train their people, “everyone is scrambling to get their processes update,” he says.

Change may be good for the industry, he added. The rules should improve consistency, reduce paperwork for closing, and “provide more advantageous timelines for creditors and lenders to provide documents for borrowers,” he says.

The changes do not apply to commercial or agricultural lending, home equity loans or lines of credit, reverse mortgages or loans for mobile homes, he says.

“What tends to happen is consumers will just skim through the documents because they want to get in there, sign the papers, and get out,” he says. Though lenders may suffer in the beginning, “consumers are the ones who need the most protection. Once processes are in place and staff is trained, it will be a better process that will simplify it for consumers.”

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