New CFPB Mortgage Rules As Of October 3, 2015 And How They Can Effect You

Image from the CFPB website

The new CFPB (Consumer Protection Financial Bureau) mortgage disclosure rules are coming to life on October 3, 2015. Their purpose is to protect mortgage consumers better. It is important to know what these new rules are and how they might effect you if you are planning to buy or sell a house in the near future. The new mortgage disclosure forms will be easier to use and more clearly lay out the mortgage terms for home-buyers, But also, it will be taking longer for lenders to fund loans and thus to close home sales.

Let me start with explaining how the new rules came to life. The mortgage crisis might seem like a distant history to many by now, but many lives have changed forever as its results. The negative consequences of the crisis are the hard reality for countless people who became unwilling pray to predatory lending practices preceding the crisis. The CFPB, was created as a result of Dodd-Frank Wall Street reform that was enacted to law in 2010. The agency was initially proposed by Elizabeth Warren, currently a US Senator from Massachusetts. It is independent and powerful agency with interim affiliation to the US Treasure Department. According to the CFPB website its role is to "promote fairness and transparency for mortgages, credit cads and other consumer financial products and services".

So, what are the new changes we should expect? For over 30 years lenders were required to deliver two different overlapping disclosures to consumers after receiving mortgage applications, Good Faith Estimate and Truth in Lending Disclosure. There will be a new form now replacing these forms providing a summary of key loan terms and estimated loan and closing costs. You can click on the Know Before You Owe link to see form examples and read how the new forms compare to the old ones. The CFPB conducted more than two years of extensive research and testing to find out how to disclose existing laws in a way that consumers understand. Specifically, the new forms are supposed to help consumers better understand loan risk factors (e.g. prepayment penalties, larger than usual payments, etc), short term and long term costs (more easily explaining the total coast of the loan) and monthly payments.

Another assumption behind new forms is that the easier to understand forms will help consumers to compare better competing mortgage offers and shop for closing costs. So, it seems all positive. However, there is unwelcome impact as well. Better experience for home buyers will slow down the overall closing process for Realtors, mortgage lenders and title (escrow) companies (and of course to principals, sellers and buyers). Basically, a typical until now 30 day closing will most likely change to make 45-day closing the new norm. The new rule requires that homebuyers have three business days to review the closing disclosure before signing off on the loan. This change will be further enforced by greater financial penalties for errors forcing lenders to slow down their mortgage lending process  by as much as 15 to 20 days.

So, please expect the 45 day home buying contracts to be new norm starting on October 3, 2015 - the day new regulations will come to life, at least for now.