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Mortgage origination disclosure overhaul debuts Oct. 1

Mortgage originators have their work cut out for them as revised disclosure forms for homebuyers take effect Oct. 3.
These new forms replace four current forms used to consummate a residential mortgage purchase — the Initial Truth in Lending Statement and Good Faith Estimate and the HUD-1 Settlement Statement and Final Truth in Lending Statement — with only two forms, reducing the work for the title agent, but increasing the work for the mortgage originator.
The new forms are the Loan Estimate and the Closing Disclosure. The change originates from the Dodd-Frank Wall Street Reform and Consumer Protection Act passed in 2010.
These new forms are meant to give consumers more time to review the total costs of their mortgage. The Loan Estimate is due to consumers three days after they apply for a loan, and the Closing Disclosure is due to them three days before closing.
These two requirements have thrown the mortgage industry into a frenzy as they try to comply by the deadline. Organizations have gone to Congress and 255 members of that body have asked for and received an open-ended “good-faith enforcement grace period” for compliance, what Congress called a “reasonable hold-harmless period for enforcement.” The period will last at least until the end of 2015, all sides have agreed.
Research by the Consumer Financial Protection Bureau and others found that consumers are most concerned about the interest rate and their monthly payment.
The researchers saw a relationship between consumer confusion about loan terms and conditions and an increased likelihood of adopting higher-cost, higher-risk mortgage loans in the years leading up to the mortgage crisis.
These findings are consistent with a 2006 Government Accountability Office study, which raised concerns that mortgage loan disclosure laws did not require specific disclosures for adjustable rate loans.
This evidence suggests that borrowers who are not presented with clear, understandable information about their mortgage loan offer may lack an accurate understanding of the loan costs and risks, according to the new TILA-RESPA Integrated Disclosure rule.
The new forms include the total costs of the mortgage over the life of the loan, any pre-payment penalties, any plans the mortgage originator has to transfer the loan and other facts consumers need to know. The new rule even changes mortgage terminology.
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