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Lending

CFPB finalizes its 'Know Before You Owe' campaign

Agency reveals new loan disclosures after 2 years of study

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Lenders will be required to start utilizing the Consumer Financial Protection Bureau’s finalized "Know Before You Owe" loan disclosure documents in an effort to more efficiently lay out mortgage terms for homebuyers, the bureau announced this week.

In the past, the law required lenders to deliver two different disclosures to borrowers within three business days of receiving their applications.

However, new guidance from the CFPB now limits how much a final mortgage deal can vary from from the original loan estimate.

"The new documentation is a happy medium, with a little bit of the old way and a little bit of the new way," said Ben Cohen, senior vice president of Mortgage Lending with Guaranteed Rate. "It helps avoid a lot of the confusion that borrowers have had by consolidating the forms and information."

The 'Know Before You Owe' loan documentation consists of two new forms: the Loan Estimate and the Closing Disclosure to ensure compliance.

"Taking out a mortgage is one of the biggest financial decisions a consumer will ever make. Our new ‘Know Before You Owe’ mortgage forms improve consumer understanding, aid comparison shopping, and help prevent closing table surprises for consumers," said CFPB Director Richard Cordray.

The CFPB said the new documentation is geared to help improve consumer understanding, compare loan offers and avoid closing costs at the table.

"MBA shares the CFPB's goal of creating mortgage regulations that protect consumers and strengthen the real estate finance system," said David Stevens, president and CEO of the Mortgage Bankers Association.

"We are pleased that they recognized the enormity of change being implemented in the mortgage systems on January 10. The August 2015 deadline is a clear recognition by the CFPB of how significant the change is and the time needed to implement this new rule," Stevens added. 

In addition, Michelle Korsmo, American Land Title Association CEO, explained that limiting the instances of delays in real estate transactions will help to ensure a positive experience for the consumer at the closing table.

Although, Korsmo explained that there is still room for improvement.

"They fall short in their disclosure of title-related fees to consumers. Telling a consumer that owner’s title insurance is 'optional’ will mean that home buyers may not be afforded the same protection that lenders receive from a title insurance policy," she added.

Overall, this is just one facet of many initiatives and rules coming down the pipeline from the CFPB. While this one goes into effect on Aug. 1, 2015, it falls in line with many of the lending rules taking effect in January 2014.

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