Mortgage Loan Agreement

The Consumer Financial Protection Bureau (CFPB) recently released a step-by-step guide titled Your Home Loan Toolkit as part of their Know Before You Owe mortgage initiative designed to improve compliance and help consumers understand mortgage loans. This toolkit will guide potential homeowners in securing mortgages, understanding closing costs and offering helpful hints for consumers to become successful homeowners. With the effective date for the Know Before You Owe mortgage disclosure rules fast approaching (August 1), the CFPB has provided the mortgage industry with time to implement the toolkit to ensure compliance with mortgage origination policies and procedures. As CFPB Director Richard Cordray stated:

The new mortgage disclosure forms coming in August will help consumers comparison shop for mortgages and avoid surprises at the closing table. We are releasing this toolkit well in advance of the effective date to help the mortgage industry come into compliance with the new rules.

The toolkit replaces a booklet developed by the Department of Housing and Urban Development that lenders now provide to mortgage applicants. The new toolkit provides consumers with information regarding the nature and cost of real estate settlement services, defines what “affordable” might mean to a consumer, and helps to identify the best type of mortgage for a particular consumer’s situation. Included in the toolkit are checklists, worksheets, conversation starters between consumers and lenders, and helpful resources. Lenders will need to provide this toolkit to mortgage applicants during the application process, and other mortgage industry participants, such as real estate professionals, are encouraged to provide the toolkit to consumers as well.

The mortgage industry’s response to the latest CFPB requirements has generally been positive. Mortgage Bankers Association President and CEO David Stevens recently noted:

We fully support efforts by the CFPB to help inform and educate consumers who are working through the complexities of the mortgage process. … It is critical that all stakeholders work together to ensure that we continue to uphold the highest standards of consumer protection and an efficient marketplace.

As noted above, the toolkit will be used in conjunction with the new Loan Estimate and Closing Disclosure forms as part of the Know Before You Owe rules issued by the CFPB in November of 2013. The new rules consolidate four disclosures that lenders previously provided to consumers under the Truth in Lending Act and the Real Estate Settlement Practices Act, into two new forms. The CFPB believes that the consolidation of these forms will help consumers avoid information overload during the closing process, allowing the consumer to better understand the costs and risks associated with their mortgages.

Mortgage lenders now have one more task to address before the final rules become effective. Lenders would be wise to adjust their loan origination processes and policies now to overcome any potential technological glitches that could occur within their system to ensure compliance with the August 1, 2015, effective date.