With all the industry coverage regarding the upcoming CFPB changes, your clients may still not be aware of how those changes may benefit them. Here, in a nutshell is an explanation to pass along to your buyers and potential buyers regarding those benefits.
The CFPB, Consumer Financial Protection Bureau, is an agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take control over their economic lives.
In November of 2013, the CFPB issued the Integrated Mortgage Disclosures Rule under the Real Estate Settlement Procedures Act and the Truth in Lending Act, combining certain disclosures that consumers receive in connection with applying for and closing on a mortgage loan. In October 2014, the Bureau proposed amendments that were finalized in the beginning of 2015 which yielded the amendments were to be in effect on August 1, 2015. Recently, the CFPB has extended this effective date to October 3, 2015.
The amendments currently and will continue to have an effect on homeowners, buyers, sellers and other stakeholders in the real estate world. In addition, this new update will affect the home buying experience in several ways. As a result of this update, the mortgage, title and escrow industries have been putting new processes in place to ensure that purchases and acquisitions of homes adapt to the new ruling.
According to the CFPB, the new disclosures are easier to understand and use than the existing disclosures. In addition, the Loan Estimate you get once you apply for a mortgage and the Closing Disclosure you get before you close are designed to work with each other. To see the direct comparisons, click here.
In addition, the CFPB published some clear benefits in their 11/13 publication titled What the New Simplified Mortgage Disclosures Mean for Consumers. Here are a few benefits that consumers can expect to experience:
- Combining several forms and additional statutory disclosure requirements into two forms will reduce paperwork and consumer confusion.
- Using clearer language and design will help consumers understand complicated mortgage loan and real estate transactions.
- Highlighting the information that has proven to be most important to consumers. On the new forms, the interest rate, monthly payments, and the total closing costs will be clearly presented on the first page. This makes it easier for consumers to compare mortgage loans and choose the one that is right for them.
- Providing more information about the costs of taxes and insurance and how the interest rate and payments may change in the future. This information will help consumers decide whether they can afford the mortgage loan and the home, now and in the future.
- Warning consumers about features they may want to avoid, like penalties for paying off the loan early or increases to the mortgage loan balance even if payments are made on time.
- Making the cost estimates consumers receive for services required to close a mortgage loan more reliable, for example, appraisal or pest inspection fees. The rule prohibits increases in charges from lenders, their affiliates, and for services for which the lender does not permit the consumer to shop unless a specific exception applies. Examples of the specific exceptions include when information provided by a consumer at application was inaccurate or becomes inaccurate, or when the consumer asks for a change in the services.
- Requiring that consumers receive the Closing Disclosure at least three business days before closing on the mortgage loan. Currently, consumers often receive this information at closing or shortly before closing. This additional time will allow consumers to compare the final terms and costs to the terms and costs they received in the estimate. That will better equip them to raise any questions before they go to the closing table.
It is worth noting that the Consumer Financial Protection Bureau seeks to strike a balance between the interests of lenders and that of borrowers. The primary rule that will shape the market is that lenders will now be required to ensure that the borrowers have the capacity to repay the mortgage that has been extended to them. Consequently, the lenders will be offered a protection against the borrower’s lawsuits provided they follow the guidelines that have been adopted. Lenders will have also have to document that they have taken reasonable measures to ensure the credibility of the borrowers.
As the new rules take effective October 3, 2015, it is important for consumers to ask questions and talk through the entire mortgage process with their realtors and financial partners. Educating yourself on the process and knowing your responsibilities from start to finish will ensure a smooth transaction and home buying experience.