Is a Simpler Mortgage Application Process On the Way?
Regardless of what type of loan you are interested in getting, the paperwork and process of getting a loan can be confusing. Sure, there are different types of loans (popular ones include VA loans, FHA loans, Conventional loans and jumbo loans) and the paperwork will be different for each type of loan – but that is not the only confusing part of the process. Each lender has different “overlays” which means getting an FHA loan from one lender may follow a slightly different process than getting a loan from a different lender.
To further complicate things, there are mortgage brokers, bankers and large banks — and each one has their own process to follow that can be confusing.
Lucky for consumers, the CFPB has been established to hopefully make the entire process simpler regardless of what type of loan you apply for.
The Consumer Financial Protection Bureau (CFPB), established following the passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, was implemented specifically to create, implement and enforce laws that protect consumer interests as they pertain to financial dealings, including mortgage applications.
As a direct response to complaints from consumers that they did not receive ample information or assistance from their lenders, the Bureau recently unveiled plans to simplify the mortgage application process and to provide increased protection for consumers who are taking out high-cost mortgages. If implemented, these regulations will provide the transparency needed for consumers to avoid costly hidden fees and uncertainties during the home-buying process. The proposed regulations currently open for public comments, and the final version of the regulations should be finalized by early 2013.
What the New Regulations Entail
Until now, federal law has demanded that loan applicants receive two sets of similar forms, one required by the Real Estate Settlement Procedures Act (RESPA) and the second required by the Truth in Lending Act (TILA). Aptly dubbed “Know Before You Owe” mortgage forms, the CFPB’s proposal would continue to require two sets of forms, but the information contained within would be less repetitive, such that one form would focus entirely on stipulating the closing costs, while the other would describe the mortgage process as a whole, including the costs and risks, information which would hopefully reduce the risk of foreclosure or defaulting on the loan.
The new forms proposed by the CFPB have been reviewed by both consumers and mortgage professionals, and have received thousands of comments from the public. Ten rounds of testing have been done in order to fine-tune the documents to ensure that they address the issues as clearly and concisely as possible. The CFPB website current presents the proposed forms for public feedback which can be submitted until November 6, 2012.
In addition to changes in the paperwork required when applying for a mortgage, the CFPB has proposed that mortgage lenders adjust the paperwork presented to borrowers in the form of monthly statements, so that moving forward, each monthly mortgage statement would include a breakdown of the different aspects of the mortgage payment such as interest and principal, as well as information listing where borrowers can seek help if they are concerned about their ability to pay their mortgage.
In the same vein, the new regulations would also require lenders would to inform borrowers in advance of any upcoming interest rate hikes, and to provide suggestions as to where the borrower can receive assistance if he or she expects that the rate hike will make the monthly payments unaffordable.
If implemented, the CFPB will monitor lenders to ensure that they respond to all borrower inquiries within a defined time period, a measure aimed at preventing borrowers from entering foreclosure simply because they could not connect with their lender to find an alternate solution which may include refinancing, speaking with a HUD (US Department of Housing and Urban Development) counselor or filing for government assistance.
Finally, the CFPB is working to protect borrowers taking out high-cost mortgages by restricting fees for late payments or modifying the terms of the loan, and requiring loan counseling for all recipients of high-cost mortgages. Public comments about the new stipulations for high-cost borrowers can be submitted to the CFPB until September 7, 2012.
Whether or not the proposed CFPB regulations are actualized, it is critical for mortgage borrowers to understand their options as they pertain both to borrowing conditions and repayment options during an unexpected financial crisis. Those who are unsure about their options or who don’t feel comfortable making a final decision should be encouraged to seek additional advice or to review the material presented so that they can make a comfortable, informed decision before committing to a long term loan.