The Consumer Financial Protection Bureau has proposed new mortgage disclosure rules in order to bring further precision in residential lending. The new rules as proposed by the Consumer Financial Protection Bureau have two elements into it:
- The loan estimate
- The closing disclosure
It is expected that if these proposed rules come into effect then it will help the mortgage borrowers to calculate their likely payments easily thus, it will help them prevent fees and other surprises. It is expected that the new rules will prevent the mortgage companies from adding transaction fees attached to the loan amount and interest rate.
What are the new rules all about?
Let's take a look at the proposed new rules by The Consumer Financial Protection Bureau:
- Within three days of submitting the loan application, the consumers would receive an estimate of the loan with the terms and conditions mentioned in it.
- It will also have to mention how the terms and conditions might shift over the life of the loan.
- It should also mention the highest loan amount that consumers may have to face.
- The lender will also have to mention the potential pitfalls or risky types of mortgages. They will have to tell the borrowers about the dangers of a negative amortization loan.
- The borrowers should also be informed about the loan elements which they should try and avoid such as the prepayment penalty.
- The lenders will also have to provide the required information about loan closing 3 days prior to the closing.
- The closing cost form should be provided to the borrowers so that they avoid any kind of surprise payments later on.
Who supported the new rules?
The new rules will be available for public comment till November 6th, 2012. The new rules have been greatly supported by the industry groups and the consumer advocacy groups. They are of the opinion that the forms as per the new rules will help the borrowers to get more prominent disclosures. They have also opined that the first page of the form should clearly mention the total cost of the loan including interest, closing costs and principal.
The Consumer Financial Protection Bureau wants to come up with rules that will require the servicers to credit payments to a borrower's account promptly. In the recent past, there have been complaints that servicers delayed registering a payment. Apart from this, it will also impose rules which will make it mandatory for the servicers to take up steps to prevent lost documents, reduce errors and provide more information to struggling homeowners.