New Rules for Consumer Real Estate Loan Disclosure
[author: James Miller]
Sections 1098 and 1100A of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) required the Consumer Financial Protection Bureau to publish rules and forms that combine certain disclosures that consumers receive in connection with applying for and closing on a mortgage loan under the Truth in Lending Act and the Real Estate Settlement Procedures Act. The Consumer Financial Protection Bureau recently amended these acts to establish these new disclosure requirements in connection with most consumer credit transactions secured by real property. The final rule which goes into effect on August 1, 2015, provides extensive guidance regarding compliance with those requirements.
Among other things, the new rule replaces the current form of disclosures provided to consumers with two new forms: a Loan Estimate, given three days after application for the loan; and a Closing Disclosure given three days before closing. On the new forms the interest rate, monthly payments and total closing costs will be prominently disclosed on the first page. The forms will also provide more information about the costs of taxes and insurance and how the interest rate and payments may change in the future–information which will help consumers decide whether they can afford the mortgage loan and the home, now and in the future. Consumers will also be warned 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. 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 (i.e. inaccuracies in the application or requested change of services by the consumer). Finally, the rule requires these disclosures be made three days prior to closing, allowing the consumer ample time to review the numbers, unlike the current situation in which closing numbers are usually provided at or shortly before the closing.
The new rule which can be found at www.consumerfinance.gov/regulations/ should provide consumers a clearer picture of the costs required to close their real estate purchase.