New mortgage disclosures required starting Oct. 3

Starting October 3, mortgage lenders must make new disclosures to borrowers after an application for a loan and prior to the closing date.

Mortgage borrowers will get two comparable disclosures instead of four in different formats, as required by the Truth in Lending Act and the Real Estate Settlement Procedures Act.

The Consumer Financial Protection Bureau created the new disclosure forms to make the loan process easier for borrowers to understand.

Under the CFPB rules that take effect October 3, a lender must provide a loan applicant with an initial loan estimate no more than three business days after the application is submitted. This disclosure shows the amount of the loan and the interest rate, the monthly payment, estimates of taxes and insurance, and the amount of cash required to close.

Lenders also must provide a closing disclosure no less than three days before the scheduled closing date. This is a big change because lenders typically provide a closing disclosure to borrowers at the closing. Borrowers cannot waive the three-day window.

Richard Cordray, director of the CFPB, said in a recent speech to the National Association of Realtors that that the three-day window will give borrowers adequate time to compare the closing disclosure to the loan estimate and make sure no terms have changed.

“Our form makes that comparison very obvious,whih minimize the potential for nasty surprises such as bait-and-switch increases in rates, fees or settlement costs,” Codray said. [New York Times] — Mike Seemuth