Mortgage Regulations And How It Affects Buyers And Closings

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Mortgage Regulations And How It Affects Buyers And Closings

This BLOG On Mortgage Regulations And How It Affects Buyers And Closings Was Written By Michael Gracz of Gustan Cho Associates

Mortgage Regulations is created and implemented by mortgage regulators.

  • The Consumer Financial Protection Bureau, CFPB, is the new sheriff in town for mortgage companies and is in charge of creating and enforcing mortgage regulations
  • The powerful CFPB has the right to investigate any violations by lenders and can assess fines
  • CFPB can even suspend licenses of lenders who are not in compliance
  • The CFPB’s mission is to protect the public consumer
  • CFPB role is also make sure consumers get treated fairly and lenders are in compliance with advertising, issuing proper and timely disclosures, and not charge unfair fees and costs

Applying And Qualifying For Mortgage Loans

The mortgage lending industry plays the most important role in our economy.

  • Most home buyers need mortgage loans in order to be able to purchase a home
  • Without mortgage lending, the home buying process will come to an abrupt halt
  • Consumers cannot be homeowners and enjoy the pride of home ownership
  • Most mortgage lenders have simplified and streamlined the very stressful and complex mortgage loan application and approval process to make it easier for consumers
  • The many disclosures that need to be disclosed to consumers
  • Number of documents that is required during the application and loan approval process is not the easiest to comprehend and understand
  • Due to the complexity and the difficulty to understand the HUD Good Faith Estimate and other mortgage disclosures, the CFPB, Consumer Financial Protection Bureau, has replaced the old HUD Good Faith Estimate with the CFPB New Loan Estimate effective October 3, 2015

CFPB Loan Estimate

The new mortgage regulations forms, the TILA- RESPA INTEGRATED DISCLOSURES, also referred as TRID, is the combination of four mortgage disclosure forms into two pages:

  • It was created and launched to make it easier for borrowers to understand
  • These forms are also called as Know Before You Owe mortgage disclosures
  • This because the CFPB wants borrowers to full understand what they are entering into before proceeding with the mortgage application and approval process

Mortgage Process With The CFPB New Forms

Borrowers who are going through the mortgage loan application process, the lender needs to give the mortgage loan applicant these two forms. One of the disclosures that needs to be given is the Loan Estimate form, which is given initially. Down the mortgage loan process, the mortgage loan borrowers needs to be given the Closing Disclosure form, which replaces the previous HUD. The purpose for the Disclosure Form is so the mortgage loan borrower can examine and review the final mortgage loan numbers and terms of the mortgage loan before the mortgage loan borrower proceeds with closing the mortgage loan.

CFPB Loan Estimate Form

The CFPB Loan Estimate Form replaces the Good Faith Estimate and the Truth In Lending Form.

  • The Loan Estimate Form needs to be disclosed to consumers within three business days after the mortgage applicant completes the loan application
  • The Loan Estimate Form will consist of three pages
  • The first page of the Loan Estimate Form will contain the following information:
    • Applicant information and information about the subject property
    • Type of loan
    • Purpose of loan
    • Terms of loan
  • Estimated and projected monthly payments for the term of the loan
  • Estimated closing costs of loan
  • Amount of cash needed to close on the home loan

Second Page Of Loan Estimate

The second page of the Loan Estimate Form will categorize and break down the closing costs:

  • Loan origination charges
  • Third-party charges such as the following:
    • title charges
    • taxes
    • homeowners insurance
    • recording fees
    • other third party charges
  • Estimated cash required at closing disclosures
  • Need to disclose interest rate table on adjustable rate mortgage if the mortgage loan is an ARM
  • Does not apply to fixed rate mortgages

Third Page Of Loan Estimate

The third page of the Loan Estimate Form shows information about the lender and explains whether this loan is right for consumer:

  • Contact information of lender and name of mortgage loan originator
  • Comparisons of mortgage types and a table showing a comparison chart
  • Other Considerations

After borrowers have decided on mortgage loan option, borrowers need to sign the Intent To Proceed Form in order for the mortgage process to proceed. The loan process cannot proceed if borrower does not sign this form.

Closing Disclosure Form

The CFPB new closing disclosure form replaces the HUD-1 Settlement Statement as well as the final Truth in Lending Disclosure Form.

  • Once its time for the mortgage loan to be ready to close, the lender will prepare the Closing Disclosure form which details the terms of mortgage loan
  • The Closing Disclosure has been created and designed to simplify and replace the HUD-1 Settlement Statement
  • Closing Disclosure consists of the same information as the Loan Estimate
  • But goes beyond where escrow account information is added
  • The Closing Disclosure needs to match the terms that you initially agreed or a change of circumstances needs to be done and re-disclosed

Same Day Or Rush Closings Will No Longer Exist

There will be a three day waiting period after the closing disclosure has been disclosed. The mandatory three business days needs to be given to borrowers so they can review the closing disclosure before they are able to close on the mortgage loan. In the event if borrower request changes to the Closing Disclosure, a new closing disclosure needs to be issued by the lender and an additional three business days needs to be given in order for the mortgage to close. It is extremely important borrowers acknowledge the receipt of the Closing Disclosure the minute they get the Closing Disclosure so the loan closing will not get delayed and the home loan will close on time.

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