Major Changes on the Way for Mortgage Application Process

The mortgage application process is slated to undergo some significant changes in the very near future. Are you prepared?

The changes, known widely as the “Know Before You Owe Mortgage Disclosure Rule”, were expected to take effect Aug. 1. However, according to media reports, it now appears that the chances could take effect sometime in the fall after the Consumer Financial Protection Bureau proposed a two-month extension of the rule. If the extension is approved the new rule changes would take effect date Oct. 3.

But regardless of when the changes will take effect, they’re going to happen either way, which is all the more reason for you to be prepared sooner rather than later.

A Closer Look at the Know Before You Owe Mortgage Disclosure Rule

Also called the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act Integrated Disclosure Rule, the new changes require easier-to-use mortgage disclosure forms that clearly lay out the terms of a mortgage for a homebuyer. Changes include major tweaks to the mortgage application process; such as the documentation needed for approval and the fees expected to apply. Together, these changes represent some of most significant revisions to these rules in 40 years.

The following is a comprehensive breakdown of the changes expected to take affect:

Elimination of ambiguous application requirement

Current Process: Borrowers are typically expected to produce a variety of information and documents as part of the mortgage application process. The information required includes:

• Name
• Social Security #
• Property Address
• Estimate of Property Value
• Income
• Loan Amount
• Any other information deemed necessary by the loan originator

What is Changing: The “any other information deemed necessary by the loan originator” has been eliminated.

TIL & GFE = LE

Current Process: Once a borrower has given a complete loan application, the lender has within 3 business days to provide an initial Truth in Lending (TIL) disclosure as well as a Good Faith Estimate (GFE).

What is Changing: The lender is no longer required to provide a TIL and GFE, and instead must provide a Loan Estimate (LE) within the aforementioned 3 business days.

“Cash needed for closing” added to LE

Current Process: Estimated settlement fees located on the GFE are typically not itemized and are instead shown in totals in the GFE blocks. Also, an estimate for “cash needed at closing” is not listed on the GFE.

What is Changing: Estimated settlement fees located on the new LE document are individually itemized, listed alphabetically under different sub categories, and the estimate for “cash needed at closing” is now included.

Zero tolerance

Current Process: Fees paid to unaffiliated third parties that a borrower may not shop for typically have a 10% tolerance.

What is Changing: Fees paid to unaffiliated third parties a borrower may not shop for now have a ZERO tolerance.

Collection of payment information

Current Process: Once a borrower has received their initial disclosures, the originator may collect credit card information for eventual appraisal payment.

What is Changing: Once a borrower has received the new Loan Estimate document and has provided the originator with their intent to proceed, the originator may then collect payment information and request verification documents. The originator is no longer able to collect payment information up front for anything other than the credit report and may no longer begin requesting verification documents until the borrower has received the Loan Estimate and indicated the intent to proceed.

Closing disclosure replaces TIL & HUD1

Current Process: A final Truth in Lending Disclosure (TIL) is provided at least 3 business days prior to closing and a HUD1 Settlement Statement can be requested 1 day prior to closing.

What is Changing: The final TIL and HUD1 are replaced by something known as a Closing Disclosure. New timing requirements means the Closing Disclosure must be received by the borrowers at least 3 business days prior to closing.

Changes in closing responsibilities

Current Process: The closing agent is responsible for preparing the final HUD1.

What is Changing: The HUD1 is gone and along with it the requirement of it being available only 1 day prior to closing. The new Closing Disclosure document must be provided to the borrower 3 business days prior to closing and the closing agent or lender may complete it. The lender is also now responsible for ensuring compliance.

At Blue Water Mortgage Corporation we believe in keeping our clients up to date on all of the changes taking place in the mortgage industry. Our team of professional loan officers is well versed in the latest and most important industry news. Contact us today if you have any questions about the recent rule changes to TILA and RESPA, or if you have a general question about the mortgage application process.

Roger Odoardi

Roger is an owner and licensed Loan Officer at Blue Water Mortgage. He graduated from the University of New Hampshire’s Whittemore School of Business and has been a leader in the mortgage industry for over 20 years. Roger has personally originated over 2500 residential loans and is considered to be in the top 1% of NH Loan Officers by leading national lender United Wholesale Mortgage.