Consumer Financial Protection Bureau director Richard Cordray said most mortgage industry players are ready for the August rules change, according to the Boston Globe.
New rules and forms aimed at making mortgage information easier for borrowers to understand are scheduled to debut on Aug. 1. The new forms are aimed at making it simpler for consumers to understand and compare loan terms, and to spot whether final terms are significantly different from a lender’s initial estimate.
The new forms were mandated by the Dodd-Frank financial reform law, which directed the Consumer Financial Protection Bureau to combine older disclosure documents required by two different federal laws, the Truth in Lending Act and the Real Estate Settlement Procedures Act. The newly organized forms will be used for mortgage applications submitted on and after Aug. 1.
“The forms are going to look very different,’’ said Andrew Pizor, a lawyer with the National Consumer Law Center. “They look a lot nicer and easier to understand.’’
Jason van den Brand, chief executive of Lenda, a mortgage refinance website, says he thinks the new forms are an improvement because they have been designed to be complementary for easy reference.
Under the new rules, borrowers will receive a newly designed loan estimate three days after submitting an application. The form will include information like the loan amount, interest rate, and monthly payment.
Then, at least three days before the scheduled closing, applicants must receive a closing disclosure, so they can have time to review the terms of the loan. The five-page disclosure summarizes the terms of the loan and lists what will be needed to pay at closing. Currently, borrowers sometimes don’t receive such information until just before or even at the closing, when they are under pressure to sign documents and complete the loan.
If certain items change after that — such as a significant increase in the annual percentage rate, the addition of a prepayment penalty, or a switch from a fixed-rate loan to an adjustable-rate loan — borrowers must be given an extra three business days of review.
Most “ordinary’’ changes that occur in the final days before the closing, like a broken refrigerator found at the walkthrough or typos found in documents at the closing, won’t set off the requirement for another three-day review, although the lender must still provide an updated disclosure, according to the Consumer Financial Protection Bureau.
The bureau finished the new rules in late 2013, but delayed adoption until Aug. 1 of this year to give the mortgage industry time to prepare.
Some software vendors are behind in delivering upgrades to computer programs necessary to process applications with the new rules and documents, said Bob Davis, executive vice president of the American Bankers Association.
Last month, the bureau’s director, Richard Cordray, said in public remarks that “most market players have put themselves in position to be ready by August, and others are getting ready as well.’’
Still, the bankers association and other groups are seeking a grace period for a time after the new rules take effect, because violations can carry hefty penalties and lenders are still getting up to speed. The bureau has indicated only that it will be “sensitive’’ about enforcement initially, as long as lenders are making a good-faith effort to comply with the new rules.