June 10, 2015
By HunterMaclean Attorneys, special to Business in Savannah
Federal law has long endeavored to inform consumers seeking mortgage loans by requiring Truth-in-Lending (TIL) disclosures and Good Faith Estimates (GFE). Beginning August 1, 2015, new rules by the Bureau of Consumer Financial Protection revamp when and how relevant and important information is given to individuals shopping for and closing on home mortgage loans.
The new rules, known as Integrated Mortgage Disclosures, combine and revise four (4) disclosures into two (2) new forms. In addition to this integration, more information will now be required in mortgage disclosure.
Within three (3) business days following the submission of a loan application, the lender must provide the loan applicant with a Loan Estimate. For this purpose, the application would include the consumer’s name, income, Social Security number (to obtain a credit report), the address of the mortgage property, an estimate of such property’s value, and the amount of mortgage loan sought.
The Loan Estimate will enhance the ability of consumers to compare multiple loan offers, as it is designed to clearly state key features, costs, and risks of the loan for which application has been made. The estimate will provide the interest rate, monthly payment amount, and all closing costs. If the interest rate and/or monthly payments are subject to change over the life of the loan, that will be stated along with features one may want to avoid, including prepayment penalties.
After the borrower and lender have agreed to terms and committed to a mortgage loan, the borrower must receive the Closing Disclosure, detailing all final closing costs, not less than three (3) business days prior to closing. This disclosure is the responsibility of the lender but may be provided by the closing attorney.
The Closing Disclosure will enable borrowers to compare ultimate closing costs in advance of the actual closing with the costs set forth in the Loan Estimate. Questions about cost changes may then be raised in advance of the closing. For the most part, costs may not increase from the initial estimate, the exception being when a relevant cost factor has changed. A “significant” increase in a cost after the Closing Disclosure is provided requires a new Closing Disclosure, which again must be received by the borrower at least three (3) days prior to closing.
Integrated Mortgage Disclosures apply to consumer credit transactions secured by real property; however, they do not apply to home equity lines of credit, reverse mortgages, loans secured only by land, loans secured by a mobile home, or loans from a lender which makes five (5) or fewer mortgage loans per year.
If considering a home loan in the next few months, delaying the process until August will afford the benefits of the new rules. Lenders were given twenty months to implement changes to software and forms, but there are bound to be some initial challenges. Therefore patience is not only a virtue but also a good credit practice, because the new information is good for both the lender and borrower. Everyone should benefit from the Integrated Mortgage Disclosures.
Please note: After press time it was announced that the implementation date may be changed to October 1, but a decision is not yet final.
