What You Need to Know About the New Mortgage Rules
What the New Mortgage Rules Require
The purpose of the CFPB in modifying its mortgage disclosure rules is to ease the process of taking out a mortgage. The rule changes contribute to that goal in two ways. First, instead of having four disclosure forms, some of which present the same information multiple times, mortgage borrowers will only have to look at two disclosure forms, the Loan Estimate and the Closing Disclosure. Second, the period of time you have to review mortgage documents will extend from 24 hours to three days, with the previous requirement of having to specifically request advance notice no longer applying.
The CFPB anticipates several positive benefits from the rule changes. It believes that the new disclosure forms will be a vast improvement on the old forms, presenting information in a way that's easier for most borrowers to understand. In particular, the CFPB helped to design the Loan Estimate in a manner that makes it easier for would-be borrowers to take offers from different lenders and compare them more easily, and the agency clearly wants borrowers to shop around for the best terms possible rather than relying on a single lender's offer.
Meanwhile, the three-day waiting period gives borrowers a long enough period to get any lingering questions answered about their mortgages. Whether you go to your lender directly or consult a professional like a real-estate lawyer or a specialized housing counselor, three days often gives you opportunities to get more information that a shorter 24-hour period didn't.
Getting the Scoop on the New Forms
Even with these streamlined disclosure rules, homeowners can still have a tough time figuring out what the documents they see actually mean. That's one reason the CFPB has provided a guide to help borrowers go through the forms and get the information they need. The new "Your Home Loan Toolkit" will be sent directly to mortgage applicants when they first apply for a home loan, but it's also available from the CFPB's website. The guides take you step-by-step through the disclosure documents, helping you understand what information they contain and making sure it matches up to your expectations of what your mortgage loan terms include. You can also get definitions of key legal terms included in the disclosures, allowing you to ensure that an unfamiliar provision doesn't get the better of you during the loan process.
Despite the CFPB's positive view on the changes, it's likely that home borrowers will have to endure some short-term challenges after the provisions take effect. Whenever industry professionals have to use a different form than they've worked with in the past, it takes some time to get used to using the new disclosures. Similarly, the three-day waiting period will make it somewhat more difficult for lenders and borrowers to work together to make last-minute changes, as any revisions will restart the clock on a new waiting period. That could jeopardize a rate lock or other aspects of the loan.
Overall, though, the new mortgage disclosure rules could go a long way toward helping mortgage borrowers understand what they're getting into when they take out a home loan. By making information available to them, the CFPB believes that its latest efforts will help borrowers "know before they owe" -- and that could help prevent a repeat of the housing bust nearly a decade ago.
Motley Fool contributor Dan Caplinger sees mortgage loans as a necessary evil. You can follow him on Twitter @DanCaplinger or on Google Plus. Try any of our Foolish newsletter services free for 30 days. Check out our free report on one great stock to buy for 2015 and beyond.