Changes are coming to some of the key documents that homebuyers sign when they
close on a mortgage loan. Government agencies are behind these changes, so it should
come as no surprise that they’re late. The changes to the Good Faith Estimate, Truth-in-
Lending Disclosure and HUD-1 Settlement Statement — required by the Dodd Frank Act
— probably won’t take effect until the middle of 2013.
As a refresher course, these three documents, forms that anyone who takes out a
mortgage loan will see, spell out exactly how much homebuyers will pay in closing
costs and interest for their home loans. The documents also tell homebuyers how many
mortgage payments they’ll have to make and when those payments are due. They’ll also
list the interest rate that they are paying to borrow their mortgage dollars.
The Consumer Financial Protection Bureau is now gathering comments to its proposed
changes. This comment period ends Nov. 6, after which the final changes will take effect.
I recently spoke to Marcus McCue, senior vice president with Guardian Mortgage, about
the possible changes to these key mortgage documents and what they might mean to
Candy: My mortgage is two inches thick of mind-numbing paperwork in my safe deposit
box. How will the new changes help that?
Marcus: We’re not sure yet, but we hope that the proposed changes will result in more
accurate fees ad estimates across the board and fewer surprises for borrowers. It should
also mean that the forms and disclosures will be easier to understand. Finally, it should
prevent a greater number of consumers from taking out mortgage loans that they can’t
afford in the long run.
Candy: Sounds too good to be true. Do you see any negative effects?
Marcus: Initially, due to the change in forms, it might take lenders more time to prepare their estimates. That could result in longer approval times for loans, but should not be an issue after the adjustment period.
Candy: I’m sure consumers would love to receive fewer documents when taking out a
mortgage loan. How will that happen under these changes?
Marcus: The Good Faith Estimate and the Truth-in-Lending Disclosure will be
combined into one form called the Loan Estimate. The proposed format is an
improvement on the previous form, but the changes will likely cause confusion for
borrowers who have purchased homes previously.
Candy: What about the accuracy of the fees listed on this new Loan Estimate?
How “guaranteed” will the listed fees be?
Marcus: There will be nearly no variation allowed on a larger number of fees, especially
those coming from vendors such as title companies and appraisers. Today, the only fees
that can’t vary from the Good Faith Estimate, for instance, are the lender origination
charge and points or credits. If these changes take place, fees for appraisals, credit
reports, flood certificates, pest inspections and other services must not differ from what
will be listed on the Loan Estimate.
Candy: Wow! That will be a big shift for those companies. Any other changes that will
Marcus: Lenders must provide their customers with the new Closing Disclosure, which
combines the current HUD-1 statement and the Truth-in-Lending Disclosure, three days
before closing. That’s a slight change from today, when the HUD-1 statement must be
provided one day before closing. It will delay some closings.
Candy: I don’t know if the Consumer Financial Protection Bureau will listen, but what if
I — or any of my readers — want to make comments on these new changes?
Marcus: Comments are welcome from everyone. You can make them here.