In 2015, the Consumer Finance Protection Bureau (CFPB) created “Know Before You Owe” mortgage disclosure rules. These were implemented to ensure that consumers would have easy-to-understand information before making what is usually their largest financial decision – namely, the purchase of their own primary residence.
There were a bunch of disclosures required by the CFPB – with changes introduced every year. The key disclosures are the Loan Estimate (which replaced the old Good Faith Estimate), and the Closing Disclosure (which replaced the old HUD-1 Settlement Statement). A lender or mortgage broker is required to issue you a Loan Estimate within three (3) business days to a prospective borrower who is “in application”.
Borrowers refinancing or purchasing a residential property are deemed to be “in application” when the following six items have been received:
- Full Name
- Social Security Number
- Property Address (for a purchase, there should be a reasonable probability of going under contract)
- Estimated Value (for a purchase, what the offer is expected to be)
- Loan Amount (this item would not be considered received if the down payment is uncertain)
- Income (the borrower’s actual and projected earnings should be reasonably reliable)
This was a good rule, because consumers often never really knew what their loan costs and reserves would be until right before closing. Unscrupulous lenders and brokers had been “hooking” their borrowers – thereby making it difficult to change lenders right before funding.
Interestingly, these rules do not apply to commercial, reverse, mobile home or HELOC mortgages.
