Originally scheduled to take effect in August the new mortgage lending disclosure laws became effective on October 3, 2015. This is particularly good news for buyers with a mortgage, and replaces the former “Truth in Lending” disclosure laws.
The new “Know before you owe” rules are designed to give buyers/borrowers more easily understandable information regarding their mortgage information. Lenders are now required to give borrowers a clearly understandable and detailed estimate of all of their loan expenses and terms of their loan application and just prior to closing a final summary giving the borrower three days to review the final terms, fees, and expenses of their pending mortgage.
These new rules, put in place by the Consumer Financial Protection Bureau, will make it easier for the borrower to compare competing loan offers and to insure they are actually receiving the loan they were promised. The downside is that if the time guidelines are not followed precisely or if changes occur in the borrower’s information (e.g. new loans, changes in credit scores, etc.) it can cause the process to start over from the beginning or the closing to be delayed.
The required new forms called the “Truth in Lending” and “Good Faith Estimate” will be replaced with the “Loan Estimate” and “Closing Disclosure”. The former document must be given to the borrower within 3 days of their application date including details such as interest rate, loan term, and other features of the loan, and the latter which must be provided not sooner than 7 days following the “Loan Estimate” and a minimum of 3 days prior to closing. During this three day period prior to closing the details of loan may not be changed. This is designed to prevent “closing table surprises” for the borrower. This also serves as an encouragement for borrowers to maintain their financial status meticulously during the period from application to closing.
It is also important, particularly in today’s rapidly changing market place, for borrowers to ask for a rate lock with which most lenders will comply for 30, 60, 90 days or even longer in some cases. Typically this protects the borrower from rate hikes during the mortgage processing period while providing for the opportunity to lower the rate should it go down during that time period. It is important for the borrower to ask for and confirm this protective feature.
This also causes a rethink of the traditional “walk-through” typically done the day of closing. Now borrowers would be well-advised to do the walk-through just ahead of the final 3 day period to avoid a significant delay in the closing process.
An informed buyer/borrower is the best way to avoid disappointment, hardship, distress, and even lawsuits in the mortgage lending process and create happy homeowners, lenders, and real estate agents.