New mortgage rules start TODAY!

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Starting today the Consumer Financial Protection Bureau (CFPB) is introducing new disclosure rules – which it calls Know Before You Owe – which will change the disclosures borrowers receive in a real estate transaction.

What will change: forms received
For borrowers applying for mortgages from today onwards what will change is that three documents, the HUD-1 Settlement Statement, the Good Faith Estimate, and the Truth-in-Lending disclosure, will be reduced to two new closing forms called a Loan Estimate and a Closing Disclosure.

When will the borrower receive these forms?
When the consumer receives the Loan Estimate form, he or she will know what the loan amount and the interest rate will be, how much the monthly payment is, an estimate of taxes and insurance based on local rates, and how much down payment is required.
This form is provided twice:within 3 days of receipt of the loan application, and again no later than the 7th business day before closing.
Read the CFPB’s Loan Estimate Explainer for more details.

The Closing Disclosure, which has the full details of all costs and payments relating to the mortgage, must be provided to the borrower at least 3 business days before closing to allow the borrower to verify the terms of the deal. (Often the first time the borrower currently sees the very complicated HUD Statement is at closing, so that the borrower relies heavily on the assurance from her attorney that all is correct.)
If no issues are identified, the closing can take place as scheduled, but if certain specific items need to be changed then the borrower must receive a revised Closing Disclosure and be given an additional 3 business days to review it.
Read the CFPB’s Closing Disclosure Explainer for more information.

Which changes require a revised Closing Disclosure?
– an increase of more than 1/8% in the APR for fixed-rate loans or 1/4% for adjustable-rate loans
– the addition of a pre-payment penalty
– any change in the type of loan, such as from fixed-rate to adjustable-rate.

Will other discoveries trigger a new 3 day waiting period?
No, only the three above. Items discovered on the walk-through before closing, or changes to such as utilities paid at closing, will not cause a delay.

What will be the impact?
Three things seem likely:
– there will, initially be a delay in some closings and these may have a knock-on effect on other closings which were scheduled to take place on the same day (e.g. somebody selling one home and buying another).
– a buyer’s agent and/or attorney will incorporate contingencies in any offer to cover any delay that may occur. Indeed, the Massachusetts Association of Realtors has already produced a form to allow for this.
– after a while, everybody will adjust and this will become a normal part of a real estate transaction.

If you – or somebody you know – are considering buying or selling a home and have questions about the market and/or current home prices, feel free to contact me on 617.834.8205 or [email protected].

Read Which broker should I choose to sell my home?

Andrew Oliver is a Realtor with Harborside Sotheby’s International Realty. Each Office Is Independently Owned and Operated

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