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The Federal Government Worries About Your Mortgage

October 2, 2015

Isn’t it common sense to read an important document before you sign it?
Apparently the Consumer Finance Protection Bureau’s (CFPB) believes that millions of Americans are not reading (or understanding) important lender-required disclosures before they sign mortgage papers. To combat this, the CFPB is implementing new rules intended to eliminate redundancy and overlapping information, and help consumers better understand the loan closing process.

The new rules are collectively called “Know Before You Owe,” will merge four documents will be merged into two: the Truth in Lending Disclosure and HUD-1 Settlement Statement are combined into the Closing Disclosure; and the Good Faith Estimate and Truth in Lending disclosures are replaced by a new single Loan Estimate form. The most relevant details of the mortgage loan including the interest rate, the amount of the monthly payments, and a list of all closing costs are clearly spelled out all on one page.

The Know Before You Owe rules also require that the Loan Estimate must be delivered to the buyer no later than three business days after receiving the application. If there are changes during that 72-hour period, the closing could be delayed. That is a big change from the current rules that allow presentment of and changes to the HUD-1 Settlement Statement on the same day as the execution of the mortgage loan. Opponents of this rule cite that many closings may be delayed. Proponents say that the rule allows borrowers an opportunity to review and digest loan terms – and to avoid a bad deal.

The CFPB’s new rules are scheduled to take effect October 3, 2015. Will Know Before You Owe have a positive effect on the lending process? Will borrowers become more informed and make better choices because of these rules? Or will this cause costly delays, broken deals, and added consumer expense? Only time will tell.

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