This BLOG On Understanding Mortgage Disclosures And Regulations Was UPDATED And PUBLISHED On March 2nd, 2020
Borrowers planning on applying for a mortgage loan, whether it is a home purchase loan or a refinance, be prepared to be overwhelmed with dozens of paperwork:
- Borrowers need to sign and review before the mortgage loan application mortgage process can proceed
- Our regulators and politicians have mandated that proper disclosures need to be disclosed
- Understanding mortgage disclosures are necessary
- All disclosures need to be properly dated
- If the date on disclosure is off by a day or two, lenders need to re-disclose or otherwise they are under RESPA violations and can be fined, censured, or have their licenses revoked
- Many loan applicants are the actual victims of the overwhelming paperwork
- This is because politicians and regulators have teamed up and made this mandatory
- Politicians created and implemented red tape because they thought it was the best interest of the public
- I totally agree in issuing full disclosures
- However, it is very difficult to understanding mortgage disclosures
- This holds even to licensed mortgage professionals
In this article, we will discuss and cover Understanding Mortgage Disclosures And Regulations.
Regulations On Understanding Mortgage Disclosures
Mortgage regulators and the Federal government mandates lenders to provide a series of important disclosures within 72 hours of triggering TRID.
- Understanding Mortgage disclosures need to be constantly provided to all loan applicants before, during, and after loan application and closing process
- Understanding Mortgage disclosures can sometimes be difficult
- But the federal government uses its own mandatory forms that needs to be disclosed to the mortgage loan applicant
- They require this because they feel by providing complex disclosures will protect public consumers
- This holds true even though the majority of the public do not understand nor read the full lengthy paperwork
Many just want to know where they sign.
Understanding Mortgage Disclosures Prior To Closing
Once borrowers sign and submit their 1003 mortgage loan application their loan originator or broker has 72 hours, or 3 days, to give them a series of loan documents also known as mortgage disclosures.
The Loan Estimate is a mandatory document that a loan originator or broker needs to provide consumers within 3 days or 72 hours upon submitting an official mortgage loan application. Loan Estimates will state and disclose the following:
- Annual Percentage Rate, also known as APR
- The total amount of mortgage financed
- Proposed monthly housing payment
- The total of all of your payments
- The total of all finance interest charges
- Late payment fees and charges
- Pre-payment penalties if applicable
Since the inception of the SAFE ACT, pre-payment penalties cannot be charged by residential mortgage companies.
Settlement Costs And Information
Another disclosure loan originators need to disclose is the Settlement Costs and Information booklet:
- This was developed and issued by the United States Department of Housing and Urban Development
- The purpose of this booklet is to explain to consumers the types of fess and costs a consumer is likely to incur for taking out a home loan they are applying for
The Loan Estimate
The purpose of the Loan Estimate or LE is to itemize and break down the overall settlement charges and costs.
- Most Lenders over disclose the estimated fees and costs on the LE
- This is because if a loan originator underdiscloses, they need to cough up with the fees and costs
- This holds true even though they have nothing to do with the third party charges
- Any charges or costs of 10% over the charges or costs listed on the Loan Estimate, the lender is responsible for those charges
Here is the items that are listed on the Loan Estimate:
- Total mortgage loan origination fees
- Credit report fees and costs
- Appraisal and inspection fees and costs
- Buy down points for the reduced mortgage rate
- Pro rate mortgage interest expense
- Homeowners insurance and mortgage insurance premiums
- Third party title search costs and fees as well as title insurance premiums
- Document preparation and recording fess and costs
If the lender is planning on selling the loan servicing rights to the home loan, which is collecting and managing monthly payments and escrows, the mortgage company also needs to disclose the Transfer of Servicing Disclosure Statement. This mortgage disclosure informs borrowers about the mortgage company’s potential right to transfer the right to service the mortgage loan to a different third party servicing mortgage lender.
Initial Escrow Account Disclosure
The Initial Escrow Account Disclosure needs to be disclosed to the mortgage loan borrower. The initial escrow account disclosure will state the following:
- Borrower’s escrow account requirements
- Cash from borrower due at closing
Post Closing Mortgage Disclosures
Once borrowers have closed on their home loan, their loan originator will provide borrowers with another set of mortgage disclosures for them to review and sign.
- Borrowers will need to review these new docs with the initial sets of disclosures that were given earlier
- If you see any drastic differences between the two documents, then notify the loan originator to explain the discrepancies
Final CD Of Settlement Costs
The Final Closing Disclosures of Settlement Costs will disclose the final costs and settlement charges and the final closing expenses incurred by borrowers. Borrowers will also get a private mortgage insurance disclosure which specifically explains the terms of private mortgage insurance and the benefits to the lender. Appraisal notice disclosures need to be disclosed to the borrower as well that states consumer right to obtain a copy of an appraisal report.
March 2, 2020 - 4 min read