CFPB Finalizes Mortgage Disclosure Reforms

Brandon, FL (Law Firm Newswire) December 30, 2015 – The Consumer Financial Protection Bureau recently finalized a rule that overhauls the disclosures that mortgage lenders are required to make to borrowers.

The rule, called “Know Before You Owe,” replaces four disclosure forms with two new ones. They are the Loan Estimate and the Closing Disclosure. The new forms are intended to be easier to understand and must be provided to the borrower three business days before closing.

O. Reginald Osenton, a bankruptcy attorney, said he thinks the new forms are an improvement.

“Understandable disclosures are vital to having informed consumers,” Osenton said. “When borrowers do not know what they are getting themselves into, that leads to bankruptcy and contributes to economic stagnation and crises like the housing crash.”

According to the CFPB, the old forms had overlapping information and complicated terms, which made them difficult for borrowers to understand. The initial Truth-in-Lending Disclosure and the Good Faith Estimate forms were replaced by the new Loan Estimate form. The final Truth-in-Lending Disclosure and the HUD-1 Settlement Statement were replaced by the Closing Disclosure.

An important but somewhat controversial provision of the new rule requires disclosures to be delivered to the borrower three business days before closing so that they have no surprises upon closing. Changes to certain terms of the loan require new disclosures and a new three-day waiting period. Opponents say this may cause delays for some closings. The CFPB counters that delays will be few because only three significant changes trigger a new waiting period: a rate increase greater than one-eighth of a percent for fixed-rate loans or one-quarter of a percent for adjustable loans; the addition of a prepayment penalty; or changes to the basic loan product, such as from a fixed rate to an adjustable rate.

A great deal of research and development went into making the new forms easy to understand. The entire process from initial design work on the forms to finalization of the rule took over four years. Officials met with consumers, brokers and lenders in nine cities to test the efficacy of prototype designs.

The CFPB has a website explaining the new forms and the design process here .