The Lowdown on the New CFPB’s “Know Before You Owe” Forms

Filed under: Market Comentary

changesLast week I wrote about the Consumer Financial Protection Bureau’s new “Know Before You Owe” mortgage forms which will replace the current ones.

Here, according to reporter James Linbach, is a closer look at the forms and their benefits.

Form #1: The Loan Estimate: This form will be provided within three business days after a prospective home buyer submits a loan application. This will replace the “Truth in Lending” statement and the “Good Faith Estimate.” It will also provide a summary of the key loan terms and estimated loan and closing costs.

Form #2: The Closing Disclosure: Consumers will get this form three business days before the closing of their loan. This form will replace the final “Truth in Lending” statement and the “HUD-1” settlement statement. It also will provide a detailed accounting of the transaction.

There has already been positive feedback on the CFPB’s new forms from an extensive study that confirmed the benefits of the forms. According to the study, consumers from all different experience levels, given different loan types, were able to understand the CFPB’s new forms better than the current ones.

The study showed that 29% of the consumers who used these new forms were actually better able to answer questions about a sample loan and were better able to make a decision whether or not they could afford the loan, including the cost of the loan over time.

According to Limbach’s article, these new forms help the consumer better understand the following key information:

1. Risk Factors: Consumers can more easily identify risky loan features due to the information on the CFPB forms. The information is disclosed in an “easy-to-read” format. The new forms also require the lender to tell potential homebuyers about any prepayment penalties, complicated loan structures, and any periodic payments that are larger than normal.

2. Short-term/Long-term Costs: The Loan Estimate and Closing Disclosure simply explain the total costs of the loan in a clearer format that is in “plain language” so the consumer can understand more easily. This will make the consumer understand the vital breakdown of the loan amount, the principal and interest payment, including how it may change, and the closing costs better than with the old forms.

3. Monthly Payments: Stated in bold font, these new forms will show what the consumer’s monthly principal and interest payments will be. For example, if a consumer will have an adjustable-rate loan, these new forms will show the projected minimum and maximum payments over the life of the loan.

The new forms will be a benefit for all of those involved.

Once again, if you are interested in learning more, please feel free to contact me and I will be more than happy to discuss this with you.






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