The government wants to make it easier for consumers to understand their mortgages and mortgage costs.
The Consumer Financial Protection Bureau has proposed two simplified mortgage forms to replace the complex forms that borrowers are given after they apply for a mortgage and before they close.
How it works now:
When a consumer applies for a loan today, the lender is required to provide the potential borrower with a good faith estimate within three days of application. The GFE contains the terms of the loan and the estimated costs to close. At least 24 hours before closing, the lender is required to provide the borrower with a final form, the HUD-1 form, with the exact numbers, terms and costs associated with the mortgage.
The problem is the two forms look totally different and have different terminology, which makes it challenging for consumers to compare apples to apples before closing. The not-so-easy to understand GFE form can be a nightmare for consumers who want to shop around and compare mortgage terms.
What changes with the new forms:
The CFPB proposes replacing the current GFE form with a loan estimate form that spells out, on the first page, the loan amount, the interest rate on the loan, the monthly payments for the first seven years and the monthly payments after that. The page spells out how much the borrower will pay for mortgage insurance and the estimated escrow monthly payments. It also specifies the total amount of cash that the borrower will need to take to closing.
A proposed closing disclosure form would do the job of the current HUD-1 form, except better. The closing disclosure form would serve as a statement of final loan terms and would be provided to borrowers before closing. The first page of the form is identical to the proposed loan estimate form, which naturally makes the two forms easier to compare.
Why did it take the government so long to come up with forms that make sense? I don't know. Maybe it has to do with the same reasons why the CFPB had to write more than 1,000 pages to describe the simplified forms.
The CFPB will accept comments from the public on the proposed forms until Nov. 6. A final rule is expected to be issued in January.
So if you don't like the new forms, you better say it now.
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