New forms created by the Consumer Financial Protection Bureau to make the loan process more transparent are about to go into effect. Mortgage borrowers will now get two comparable disclosures instead of four in different formats, as required by the Truth in Lending Act and the Real Estate Settlement Procedures Act. Starting October 3, a lender must provide a loan applicant with an initial loan estimate no more than three business days after the application is submitted. This disclosure shows the amount of the loan and the interest rate, the monthly payment, estimates of taxes and insurance, and the amount of cash required to close.
The second set of disclosures the lenders are now required to provide is a closing disclosure, that must be delivered no less than three days before the scheduled closing date. Lenders typically provide a closing disclosure to borrowers at the closing. Borrowers cannot waive the three-day window. The goal of the new docs will be to give a three-day window so the borrowers will have adequate time to compare the closing disclosure to the loan estimate and make sure none of the terms have changed.
“Our form makes that comparison very obvious, which minimizes the potential for nasty surprises such as bait-and-switch increases in rates, fees or settlement costs,” Richard Cordray, director of the CFPB, said.
