The Consumer Financial Protection Bureau (CFPB) is a Congress-established agency with regulatory control over federal consumer protection laws. Their goal is to make rules in our various financial markets more effective and consistent to protect consumers. Recently the CFPB created some new rules aimed at helping buyers and sellers have a better understanding of the borrowing process. Below are some of the changes you can expect to see beginning August 1, 2015.
Buyers buying their home with a mortgage will receive a standardized Loan Estimate document from the lender which outlines variables such as the type of loan, payment schedule, interest rate for the mortgage, information about prepayment penalties and other terms of the transaction (such as balloon payments or mortgage insurance), costs to close the loan, and State Law provisions. This document is provided to the loan applicant no more than three days after the buyer submits a loan application.
In addition, Buyers will receive a Closing Disclosure no less than three days before the loan is scheduled to close which reiterates the above variables.
The mandatory three day review period for both of these documents was put in place to allow borrowers the time they need to read through them and have a thorough understanding of exactly what they are committing to. Furthermore, these documents include instructions to the borrower to compare the Loan Estimate to the Closing Disclosure verifying the two documents have the consistent information.
The biggest impact of these changes is that the lender will need more time to process your loan and turn documents over to escrow. At a minimum, it is likely buyers will need 3 more days, but more likely it will be 5-10 days.
The forms themselves have been streamlined and are easier to understand. The interest rate, monthly payments, and the total closing costs are clearly indicated on the first page of the documents for easy reference and to make it easier to compare loan products with different lenders.
Both the Loan Estimate and Closing Disclosure are used for closed-end mortgages, meaning they are not used for home equity lines of credit, reverse mortgages, or for any loan not attached to land. Furthermore, these rules do not apply to creditors who produce fewer than five loans per year.
These new policies will make the process easier and more transparent to borrowers. If you are buying or selling a home this summer and expect the contract for purchase and sale to come in around the end of July, remember that these policies may impact your transaction as lenders and closers navigate through the new documents and timelines. I have attended several workshops on the changes and would be happy to answer any questions you may have. Please give me a call: (206) 790-0081 or send an email to :[email protected]