This is the third post in a series on the Know Before You Owe project for simplifying mortgage disclosures. Last week, we explored the origins of the project and the process that brought us to this point. Today, we’re explaining the proposed rule we’re issuing to make mortgage disclosures more effective and easier to use.
For the majority of Americans, buying a home means taking out a loan. A mortgage loan is the biggest financial commitment most of them will make in their lifetimes. With something so important, you ought to be able to get up-front, easy-to-understand information that lets you compare different loan offers and find the one that’s best for you.
That idea was the starting point for the Know Before You Owe mortgage disclosure project. The Dodd-Frank Act requires us to combine the Truth in Lending and Real Estate Settlement Procedures Act disclosures, and we began Know Before You Owe to make sure the people who would use the new forms were part of the process of creating them.
Today, we’re presenting the results. After more than a year of research, testing, writing, and review, we’re submitting a proposed rule to the Federal Register to create new, easier-to-use mortgage disclosures.
There is more to the proposal than just the forms. Today, rules known as “Regulation X” and “Regulation Z” tell industry how to fill out the forms. We are proposing new rules in Regulation Z to tell industry how to fill out the new forms. We are also proposing commentary that interprets the rules to help industry understand how to comply. To help you see how the rules and the commentary interact with each other and the forms, we are showing you the applicable rules and commentary for each section of the first page of the Loan Estimate.
We’re doing this to save you the trouble of flipping pages to find the right rule for filling out the form, and then flipping more pages to find the right comment to help you understand that rule. Instead of you hunting for the rules and commentary, they will come to you.
We think this is a helpful way to present the proposed rules and commentary to busy industry stakeholders. If this is useful, we will explore doing it for the rest of the rule. See for yourself.
More about the proposed rule
The proposed rule and forms would have benefits for both consumers and industry:
- Simpler than the old forms. Lenders can explain the terms more easily using fewer forms. Consumers, meanwhile, can understand and compare different mortgages more effectively, and compare their estimated and final terms and costs more easily, helping them make the right decisions for themselves and their families.
- Highlight information consumers need. Interest rates, monthly payments, the loan amount, and closing costs are all right there on the first page. Also, the first page explains how the interest rates, payments, and loan amount might change over the life of the loan, including the highest they can go. The forms also offer more information about taxes, insurance, and other property costs so consumers can better understand the total cost.
- Easier to look out for risks. The forms provide clear warnings about features some consumers may want to avoid, such as adjustable interest rates and payments, prepayment penalties, and loan balances that increase (negative amortization). The proposed rule also contains provisions to make estimates more reliable. And because the proposed rule requires lenders to keep electronic copies of the forms they give to consumers, industry and regulators will be able to address compliance questions more easily.
- More time to consider choices. The lender or broker must give the estimate within three business days of applying, and they must receive the closing disclosure at least three business days before closing.
The rule will be published in the Federal Register soon, and when it is, we’ll update this blog post to let you know how to comment.
In the meantime, please, check out the new forms and the process that brought us here. We’ve got a lot more for you to explore: a side-by-side comparison of the new forms and the old ones, a visual timeline of how we got here, summaries for consumers and for industry, and reports on what we learned.
Thank you for all your hard work. We couldn’t have done this without you.