• Coming in 2015: Simpler Mortgage Disclosure Forms (and a replacement to the HUD-1 Settlement Statement)
  • January 14, 2014 | Author: Sarah Yocum Rider
  • Law Firm: Barley Snyder - Lancaster Office
  • As part of the continued reform of the home mortgage market, the Consumer Financial Protection Bureau (“CFPB”) issued a final rule on November 20, 2013 in an attempt to increase fairness and clarity in residential lending. The new “Know Before You Owe” forms will replace the existing federal disclosure forms (the Good Faith Estimate, the Truth in Lending Disclosure and the HUD-1 Settlement Statement) and will hopefully help consumers both better understand their mortgages and make loan comparisons.

    The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) directed the CFPB to combine and simplify the disclosures that consumers receive in connection with applying for, and closing on, a residential mortgage loan under the Truth in Lending Act and the Real Estate Settlement Procedures Act. Although the new rule was issued in November 2013, the rule only becomes effective August 1, 2015, and will apply to transactions for which a creditor or mortgage broker receives an application on or after that date.

    Borrowers frequently have questions and concerns regarding the terms of their residential loans because the forms used by lenders are very complex and often received on very short notice. The new standardized forms, available to view on the CFPB website (www.consumerfinance.gov/knowbeforeyouowe), have been redesigned to simplify important information.

    The new Loan Estimate will replace the current Good Faith Estimate and the current Truth in Lending Disclosure. The new Closing Disclosure will replace the current HUD-1 Settlement Statement.

    The final rule also includes certain requirements related to the timing of providing the Loan Estimate and the Closing Disclosure to borrowers in order to give borrowers more time to review and understand the terms of their loans. Starting in August 2015, lenders will be required to provide borrowers with the Loan Estimate three business days after the loan application is submitted. An additional requirement, which may prove more problematic, states that the Closing Disclosure (the new HUD-1) must be provided to borrowers at least three business days before the closing. Providing the Closing Disclosure three days before closing is a major adjustment of current practices, as the typical scenario is that the final HUD is approved by the lender 24-48 hours (or even as soon as a few hours) before closing. Either the CFPB will need to relax this requirement in certain circumstances or lenders and settlement agents will need to significantly adjust their practices.

    Overall, the Loan Estimate and the Closing Disclosure appear to be a significant improvement over the existing disclosures, particularly the Truth in Lending Disclosure, which is the cause of much confusion. Once lenders, consumers, attorneys and settlement agents become comfortable with the new documents, they will hopefully assist in causing the residential mortgage application process and closings to run more smoothly.