Mortgage borrowers will be getting simplified and more streamlined disclosures spelling out the terms of their loans, now that the new forms have been finalized by the Consumer Financial Protection Bureau (CFPB).

The two new forms, known together as the "Know Before You Owe" forms, will replace four separate disclosures currently provided to mortgage borrowers prior to closing their loans. The new forms are intended to make it easier for mortgage borrowers to understand the terms of their loans and ensure they are getting the same terms they bargained for, without hidden costs.

"Taking out a mortgage is one of the biggest financial decisions a consumer will ever make," said Richard Cordray, CFPB director. "Our new 'Know Before You Owe' mortgage forms improve consumer understanding, aid comparison shopping, and help prevent closing table surprises for consumers. Today's rule is an important step toward the consumer having greater control over the mortgage loan process."

Streamlined summaries

The first form, called the Loan Estimate, is a three-page document summarizing the loan's main terms and an estimate of loan and closing costs. It will be provided to borrowers within three days of submitting a loan application and replaces the current Truth in Lending and Good Faith Estimate forms.

The second form, the Closing Disclosure, provides a detailed breakdown of the loan terms and costs, and must be provided three days prior to closing to give the borrower time to study it, up from one day presently. It will replace the final Truth in Lending Statement currently given to borrowers, as well as the HUD-1 Settlement statement.

The Closing Disclosure provides much of the same information as the Loan Estimate, in the same format, making it easy for borrowers to spot any possible changes.

Intended to make comparison shopping easier

There is considerable overlap and duplication among the four forms currently in use, which the CFPB sought to eliminate by consolidating them into two similar forms to be provided at the beginning and end of the loan process.

The new forms are expected to make it easier for borrowers to comparison shop among various lenders and compare competing offers, as well as to avoid being taken advantage of by "bait and switch" tactics in which more costly loan terms are presented to the borrower at closing.

Lenders must begin providing the new forms no later than Aug. 1, 2015.

Published on August 17, 2015