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CoreLogic U.S. Housing Policy Update - October 2015

Tackling the New “Know Before You Owe” Regulations

Faith Schwartz    |    Housing Policy, Videos


As the Consumer Financial Protection Bureau (CFPB) ushers in its new “Know Before You Owe” initiative, it’s important at the outset to understand just what it is and why it’s important. The Truth-in-Lending-Act and Real-Estate-Settlement Procedures Act integrated Disclosure Rule – commonly referred to by the mortgage industry as the TRID – was created to make the loan application, origination and closing process more transparent. Let’s examine the parts so that the whole makes a whole lot more sense.

Changes to the Loan Estimate

The industry has been speaking about this potential combined rule for many, many years, and we now are facing the change head on.  On the heels of significant regulatory changes that impact origination, servicing and securitization, we now have the consumer facing changes that are intended to make the mortgage loan application and closing process a more user friendly experience.

Consumers will now find that when they are shopping for a new home they will be dealing with a new version of disclosures designed to assist them with their homebuying process. By combining the Loan Estimate and Closing Disclosure components of the mortgage process, consumers will find an “in motion” account of costs in an accurate and consumable way at the beginning of the loan process and at the final closing table. Most importantly, if there are material changes, the consumer or homebuyer will now have time to review the changes to ensure they are appropriate and properly adjusted.

Tolerances Between the Disclosures

So what is new about disclosures? 

  • Some estimates cannot be changed at all
  • Some estimates may change slightly (cumulative estimates may not change or increase by more than 10 percent
  • Some estimates may change by any amount

The key to any changes in cost is the timing of the change as it relates to the set rule around how close it is to final closing.  And in some instances, that may mean it needs to be in the closing disclosure.

The closing disclosure is to be received by the consumer no later than three business days before closing and if mailed, seven business days before closing.  The loan estimate is to be part of the package so that a comparison of any changes is available for review.  This sounds like a good plan with plenty of time for review and adjustment as needed.  However, there are some scenarios that can take this straightforward process off track.  What do we need to watch for and how will we know it is successful?

The creditor is responsible for errors though the information is often populated by industry partners.   So strong service level agreements, arrangements and partnerships are paramount for the system to operate responsibly to ensure accuracy and accountability to consumers and one another.

Another key item is incorrect disclosures and closing information – How much time is needed to correct information and ensure the consumer is taken care of and fully appreciates the changes?

  • For material changes to the APR, product or prepayment penalty addition, there is an additional three-business-day delay.
  • The loan delays may impact the purchase and sale of homes that are dependent upon the supply chain of buying and selling homes.  So the pipeline after October 2 may not move as fluidly or as predictably in the early months of activity.

What is important about October 3 as a start date and what does that mean for consumers and the mortgage industry stakeholders? 

Primarily, this will be the beginning of capturing new applications under the new rules from the CFPB with integrated disclosures. Realtors, settlement agents, mortgage companies, and partners who participate in the transaction must be well versed to continue participating in the important process of closing a loan.

Very few people have argued that the previously existing system in place was the most clear and efficient. And the consumer experience continues to be an important barometer on how we progress in the 21st century. 

Also important to note, all eyes are on the mortgage industry as we wade through this next set of rules and execute the plan for more transparency and understanding of the very complex transaction of purchasing a home.

As an industry, this effort has pulled together sometimes disparate interests to ensure that realtors, mortgage bankers, consumer advocates and government agencies continue to find alignment on how to service the consumer in shopping for a residential loan, understand the expense of a residential loan, and fully comprehend the loan closing information so they can finalize the largest purchase of their lives.

The mortgage industry needs to continue to find ways to operationalize all of these new rules and continue to refine the processes in order to make this next state of “Know Before You Owe” a successful experience for the consumer.

The information contained in this video and blog post is provided to you as educational content and does not constitute legal advice.

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