Five Pitfalls Lurking in New Mortgage Disclosures
April 1, 2015 8:30 AM
The mortgage application and closing process is once again facing an overhaul. The Consumer Financial Protection Bureau will soon require lenders to provide customers with integrated disclosure forms, which aim to clarify costs associated with real estate transactions. As with any new process, the switch poses a number of challenges for lenders and could even put business at risk during implementation. Here are five pitfalls to look out for in the process. Image: Fotolia
Compliance Could Still Be a Moving Target
The Consumer Finance Protection Bureau has clarified that the original Aug. 1 implementation deadline for integrated disclosures is still in place. But the agency has also said "it is open to considering new information from stakeholders" about any troubles they encounter in meeting the deadline. Image: Fotolia
New Disclosures Will Complicate Pre-Approvals
Whether the new regulation ends pre-approvals entirely has drawn a lot of debate. But one of our attorney bloggers firmly believes some types of pre-approvals could become a thing of the past because lenders will have to provide the new disclosures before they can verify certain loan information. Image: Fotolia
Operational Changes Will Add to Lender Costs
The process of developing, testing, and integrating the new disclosure forms comes with a price tag, as does training employees on how to use them. Regulators' decreased tolerance for departures from initial closing cost estimates and possible enforcement actions could hurt lenders' bottom lines, too. Many lenders will need to update their processing systems so they can quickly add or remove validations, workflows and conditions; that could be a large scale project. Image: Fotolia
The Downside Is More Immediate than the Upside
Originators will have to make dramatic adjustments to their scripts in order to comply with the new disclosures. And both lenders and consumers will have to adjust to a new three-day waiting period prior to closing. On the bright side, the reform does address many problems with the current Good Faith Estimate form which should pay off in the long term. Image: Fotolia
Title Companies and Lenders May Clash
Under the current system, title companies provide borrowers with the HUD-1 settlement document itemizing fees and charges for the real estate transaction while lenders provide borrowers with Truth in Lending Act financial disclosures. The new CFPB document will combine both of those forms, requiring lenders and title companies to finalize the merged form ahead of time. Image: Fotolia
