July 1, 2015
By HunterMaclean Attorneys, special to Elegant Island Living
Two years ago I wrote to explain mortgage loan disclosures required under Federal law to help consumers/borrowers – Truth-in-Lending (TIL) and Good Faith Estimates (GFE). For all residential mortgage applications made on or after August 1, 2015, new rules by the Bureau of Consumer Financial Protection revamp how and when relevant and important information is given to individuals shopping for and closing home mortgage loans.
Integrated Mortgage Disclosures, as the new rules are known, combine and revise four (4) disclosures into two (2) new forms. The Loan Estimate must be provided by the lender to a loan applicant within three (3) business days following the submission of a loan application. For this purpose, “application” consists of 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.
After a borrower and lender agree to terms and commit to a mortgage loan, the Closing Disclosure must be in a borrower’s hands 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 Loan Estimate is intended and designed to clearly state key features, costs, and risks of the loan for which application has been made. The first page will show the interest rate, monthly payment amount, and all closing costs. If monthly payments and/or the interest rate 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. This will enhance the ability of consumers to compare multiple loan offers.
The Closing Disclosure will enable borrowers to compare ultimate closing costs with the costs set forth in the Loan Estimate, in advance of the actual closing. Questions about closing costs may then be raised before everyone is seated at the table. Most costs may not increase from the initial estimate unless a relevant cost factor has changed. A “significant” increase in a cost after the Closing Disclosure is provided requires a new Closing Disclosure, which too must be received by the borrower at least three (3) days prior to closing.
Integrated Mortgage Disclosures do not apply to home equity lines of credit, reverse mortgages, loans secured by a mobile home, loans secured only by land, or loans from a lender which makes five (5) or fewer mortgage loans per year.
The new rules may initially challenge some of the many parties typically involved in a mortgage loan, so patience will continue to be a virtue. Information and knowledge is good, though, for both the lender and borrower. The Integrated Mortgage Disclosures should benefit everyone.
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.
