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Applying for a home loan soon should get easier and less confusing. That is the goal, at least, of changes to the mortgage application process required by the 2010 Dodd-Frank banking reform act, which finally kick in Saturday.

Clearing up confusion

If you have taken out a mortgage, you know how confusing the process can be. The law has required lenders to reveal in writing the fine points of the loan. But the documents that must be used are hard to understand for anyone who’s not a lawyer or a real estate professional.

Timing has also been a problem. The final details of a mortgage typically have been dumped in borrowers’ laps along with the final loan papers, meaning that, typically, a borrower has to take in the costs and terms of their new mortgage only minutes before signing the papers that commit them to hundreds of thousands of dollars of debt.

Stories of confused borrowers signing complex, risky mortgages they didn’t understand were commonplace at the end of the housing bubble. Congress’ effort to correct that led to a number of changes, including those going into effect now.

Two new disclosure forms

Starting now, lenders will use two new forms to explain the details of their mortgages — a loan estimate (shown here at the CFPB), which must be given to a borrower no later than the third business day after the borrower applies, and a final closing disclosure, which borrowers will receive three business days before a mortgage deal closes.

The two forms look similar, which should help borrowers line up the lender’s initial offer with the final deal, better revealing any bait-and-switch discrepancies in fees, rates or settlement costs.

More time to review the purchase

Lenders now will need to give borrowers the closing disclosure form breaking down the final costs and loan details at least three business days before the mortgage papers are signed. This will give borrowers the time necessary to:

  • Understand all of the loan’s terms and costs.
  • Compare the final product with the offer they received initially.
  • Ask questions about points of confusion.
  • Enlist help from a lawyer, trusted friend or family member.
  • Think about whether they can truly afford the mortgage they are considering and — if not — back out.

Brace for a rocky start 

The process is likely to create longer closing times. Borrowers can keep things moving by organizing their documents early, turning them into the lender quickly and scheduling inspections immediately. Some real estate agents are planning to write contracts with 45-day closings, instead of 30. “If you’re prepared for a little more time and it takes less, everybody leaves a little happier.”


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