The Consumer Financial Protection Bureau (“CFPB”) issued a rule on November 20, that requires the use of new, simplified mortgage disclosure forms available in English and Spanish that detail the terms of a mortgage to homebuyers.
“The new ‘Know Before You Owe’ mortgage forms will replace the existing federal disclosures and help consumers understand their options, choose the deal that’s best for them, and avoid costly surprises at the closing table,” according to a CFPB press release.
For the past 30 years, the release said, federal law has required lenders to deliver two different forms to homebuyers within three business days after receiving a mortgage application, which often contained disclosures that overlapped.
Two more forms are delivered at the closing stage as well. Recognizing the need to streamline the process, The Dodd-Frank Wall Street Reform and Consumer Protection Act transferred authority over the existing forms to the CFPB.
“All of these forms contain duplicative and sometimes confusing information,” the CFPB said.
After two years of extensive research and testing, the CFPB has created two forms that fulfill the Dodd-Frank law’s intention of creating forms that are easier for consumers to understand.
The loan estimate form, provided within three business days after a loan application is submitted, will replace the truth in lending statement and the good faith estimate. The new form provides a summary of the loan terms, fees and estimated closing costs.
“Consumers can use this new form to compare the costs and features of different loans,” the CFPB said.
The closing disclosure form, received by consumers three business days before closing on a loan, will replace the final truth in lending statement and HUD-1 settlement statement. The new form will contain the accounting details of the transaction.
The new disclosure forms, are required to be used as of August. 1, 2015.