Written By: Daniel Garcia
In order to simplify the disclosures for consumers and encourage more shopping, the CFPB or Consumer Financial Protection Bureau is in the process of changing the GFE. This change should be happening within the next few days, I imagine. So, I wanted to take another moment discuss this and hopefully shed some understanding and remind you of these changes soon to come.
Need FHA Training? CLICK HERE: http://www.FHA-Classes.org
What they are planning to do is combine the RESPA and TILA disclosures into one document and simply call it the Loan Estimate. This new disclosure will us to truly show consumers the items they really care about, like the interest rate, cash to close and total monthly payment. However, there are some confusing things in the new Loan Estimate that consumers will see and we need to be prepared to explain: APR and TIP.
APR’s are about to get much more confusing. In the proposal by the CFPB, the new APR calculation will be inclusive of all fees included in a transaction, including title insurance, appraisal charges, survey fees, certain taxes, and more. At the same time the CFPB is proposing other sweeping changes which will increase APR’s. The other confusing part of the new Loan Estimate will be Total Interest Percentage (TIP). This calculation is the total amount of interest that consumers will pay over the loan term as a percentage of the loan amount. Here is an example of what a TIP will look like: on a 30 year fixed rate mortgage of $162,000 at 3.875% will show a TIP of 69.447%. I’m really not sure how this is helpful to the consumer just yet.
Need FHA Training? CLICK HERE: http://www.FHA-Classes.org
Now, the new Closing Disclosure, which will ultimately replace what we now know as the HUD-1, should be helpful to consumers. The first page will look similar to the Loan Estimate while the second page will itemize the fees paid by consumers, sellers, and others. However, the Closing Disclosure will still include the APR, TIP, and the ACF (average cost of funds used to make the loan). One other feature of the Closing Disclosure that the CFPB wants is a zero-tolerance for fee increases. We are currently allowed a 10% tolerance to help with unexpected costs. Another thing to keep in mind is that there will be a 3 day delivery requirement involved with the Closing Disclosure. In the proposal, the consumer must wait three days after signing the Closing Disclosure before the loan can actually close. This is very similar to the three day right-of-rescission rule on refinances. So, if any changes take place, the three day waiting period may start over.
As stated earlier, these changes are expected very soon so stay tuned! That’s all for now, make it a great week!
About The Author
Daniel Garcia - As an NAMP® staff writer, Daniel Garcia is a loan processing instructor for Loan Processor University (www.LoanProcessorTraining.org). Daniel also currently works for a non-profit housing and community development corporation where he serves as a senior loan officer and heads up the organization’s homebuyer education program. Daniel provides consultation services to other non-profit housing organizations nationwide, training in the areas of mortgage qualification and processing, state and federal laws, adult education training methods, and credit/foreclosure intervention counseling and program setup. He has gained a variety of experience, from mortgage processing and loan originating to loan servicing and loss mitigation. If you're interested in becoming a writer for NAMP®, please email us at: contact@mortgageprocessor.org.
