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November 27th, 2013

New mortgage forms give consumers ‘greater control’



Portrait of a relaxed young couple using a laptopThe Consumer Financial Protection Bureau (CFPB) has issued a new final rule that requires lenders to use the federal agency’s newly redesigned mortgage disclosure forms. The rule will take affect Aug. 1, 2015.

The forms are intended to help borrowers:

  • Understand their options
  • Choose a loan that’s appropriate for them
  • Avoid costly surprises at closing

In a statement, CFPB Director Richard Cordray characterized the forms as “an important step toward the consumer having greater control over the mortgage loan process.”

Form 1: The Loan Estimate

The rule not only requires that lenders use the forms, but also specifies when the forms must be provided and limits how the final loan terms and costs can change from the original estimate.

Lenders must give consumers the new “Loan Estimate” form within three business days after the consumer submits a loan application. This form replaces both the early Truth-in-Lending (TIL) statement and Good Faith Estimate (GFE) and gives the consumer a summary of loan terms and estimated loan and closing costs.

The form can be used to compare the costs and features of different loans.

Form 2: The Closing Disclosure

Borrowers will receive the new “Closing Disclosure” form three business days before their loan closes. This form provides an accounting of the loan origination and replaces both the final TIL and HUD-1 settlement statement. The three-day period is intended to give borrowers time to review their final loan terms and costs, confirm they’re receiving the loan they expected, ask questions and negotiate any changes that occurred in the terms or costs.

The intention

The forms are intended to help consumers better understand risk factors, such as prepayment penalties, larger-than usual periodic payments or complicated loan structures, and loan terms, including the loan amount, principal and interest payment, how the interest or payment could change and closing costs, the CFPB said.

The two forms use a similar format to help consumers compare the estimate with the final terms.

The forms are available in English and Spanish.

Research found forms helpful

The CFPB conducted more than two years of research, testing and review to create the new forms. This research found that consumers were better able to understand the new forms, answer questions about a sample loan and decide whether they could afford that loan, the CFPB said.

The research also found the new forms helped consumers comparing competing loans offers and shop around for closing costs, the CFPB said. Closing costs can include origination fees, appraisal fees, title insurance, taxes, settlement services, inspections and homeowner’s insurance.

Click here to read more about the new mortgage forms.

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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