The Consumer Financial Protection Bureau is not only changing the way to buy a home, but specifically in how to obtain a mortgage. credit.com says the Dodd-Frank Act (federal financial reform legislation), directed the CFPB to improve the procedures for using a home in light of the 2008 housing crisis. “Know Before You Owe” has been a focus since the agency was created.
People in sales already understand “Know Before You Owe.” If you’re a buyer, the changes you need to know about involve loan estimates and closing documents. If you already have a mortgage being processed, you’re being regulated by the old rules. But on October 3, 2015, you’ll be subject to the new changes.
Before the change, homebuyers received the “HUD-1 Settlement Statement” — short for the U.S. Department of Housing and Urban Development — at closing, when they were already busy signing dozens of forms and unlikely to spot errors.
credit.com says “both the HUD-1 and the TILA disclosure are being replaced by a single “Closing Disclosure” form. This form is still several pages long, but designed to be easier to read. As part of the CFPB changes, the cover page includes clear representations of monthly payments, total payments, closing costs, prepayment penalties, balloon payments and potential interest rate changes during the life of the loan. Everything on page one of the document is a direct response to complaints about many practices that tripped up consumers during the housing bubble.”
The rest of the document is similar to the old HUD-1, with borrowers’ details on one side and sellers’ details on the other. Other terms follow. There’s also an easy-to-use interactive guide to the paperwork on the CFPB website.
The other change involves the “Good Faith Estimate”. That’s what you get at the beginning of the loan shopping process. Now, that form is being replaced by the “”Loan Estimate.” It has a few more details and is designed to help you try to shop around for the best deal. The final page of the “Loan Estimate” includes a section called, “Comparisons.” “Comparisons” lists the interest, principal and loan costs after 5 years.
Critically, the final page of the “Loan Estimate” includes a section called “Comparisons”, which clearly lists the interest, principal and loan costs paid after five years, and a new concept called “Total Interest Percentage”, which outlines the total interest paid during the life of the loan as a percentage of the amount borrowed. An interactive tool to see the “Loan Estimate” form is on the CFPB site.
Meanwhile, consumers will also receive a “Your Home Loan Toolkit” booklet when they close, which offers some additional tips about protecting the value of their investment. The CFPB has also published its “Owning a Home” guidebook online, which contains similar advice.