As part of its “Know Before You Owe” mortgage initiative, a new toolkit called “Your Home Loan Toolkit” has just been released by the Consumer Financial Protection Bureau (CFPB).
This toolkit of instructions and recommendations helps the buyers you represent navigate the process of:
- selecting a suitable mortgage;
- timely closing a transaction; and
- owning and maintaining a home.
The toolkit features:
- a step-by-step guide of the mortgage application process;
- interactive worksheets and checklists; and
- conversation starters for discussions between buyers and lenders.
Real estate brokers and agents are encouraged by the CFPB to get familiar with and discuss the process of acquiring a home and the carrying costs of ownership with their buyers before starting the mortgage approval and home selection process. When potential homebuyers get a preapproval commitment for a purchase-assist mortgage on acceptable terms, agents have a better chance the transaction will close smoothly (and a better return on their time and talent).
Mortgages are complex and risky financial commitments, particularly for first-time borrowers who are just entering the homeownership fray. New mortgage disclosure forms created by the CFPB for use by mortgage lenders apply to all consumer mortgages beginning August 1, 2015. These new sets of substitute titles and forms for agents, escrow officers and loan representatives replace forms used in the past. They are retitled generically to convey the purpose of the forms in use.
The Your Home Loan Toolkit is used by buyer’s agents in conjunction with the new lender disclosure forms, including:
- the Loan Estimate form, which replaces the good faith estimate of costs (GFE) and initial Truth-in-Lending Act (TILA) disclosure delivered to borrowers by the lender three days following the lender’s receipt of an application [See first tuesday Form 204-5]; and
- the Closing Disclosure form, which replaces the HUD-1 Settlement Statement handed to borrower/buyers three days before closing. [See first tuesday Form 402]
Editor’s note — first tuesday will make the new Loan Estimate and Closing Disclosure available at journal.firsttuesday.us once they are formally released by the CFPB.
An electronic version of the toolkit is provided by CFPB. The forms include fillable text fields and check boxes for the buyer and their agent to fill out when they review the toolkit.
An early release of the toolkit available online allows the mortgage industry and real estate agents to get familiar with the new protocols before use of the substitute forms becomes mandatory for consumer mortgage lenders.
Benefits of the new forms and toolkit for buyers and their agents include:
- greater lender transparency by combining several forms and other statutory disclosure requirements into just two forms to reduce the mortgage paperwork you need to review with your buyer;
- better buyer understanding of mortgage and real estate transactions by using common terminology and intuitive visual design;
- critical mortgage features highlighted for buyers, such as the interest rate, total monthly payments and total closing costs;
- warnings of mortgage features buyers need to avoid, such as adjustable rate mortgages (ARMs) or non-amortizing mortgage terms;
- more reliable cost estimates for escrow services; and
- earlier receipt by buyers of the Closing Disclosure at least three business days before the lender funds the mortgage.
Benefits of the forms are given in greater detail on the CPFB website.
Your Home Loan Toolkit also helps your buyer:
- make better choices along their path to owning a home;
- know the steps to take for arranging the best mortgage for their financial situation;
- visually understand their closing costs; and
- successfully maintain their ownership of a home.
The toolkit is divided into three major categories and subsections, phrased to speak directly to the buyer:
- Choosing the best mortgage for you:
- Define what affordable means to you;
- Understand your credit;
- Pick the mortgage type that works for you;
- Choose the right down payment for you;
- Understand the trade-off between points and interest rate;
- Shop with several lenders;
- Choose your mortgage; and
- Avoid pitfalls and handle problems.
- Your closing:
- Shop for mortgage closing services;
- Review your revised Loan Estimate; and
- Understand and use your Closing Disclosure.
- Owning your home
- Act fast if you get behind on your payments;
- Keep up with ongoing costs;
- Determine if you need flood insurance; and
- Understand Home Equity Lines of Credit (HELOCs).
Lender transparency is all about lenders allowing buyers to avoid the all too common eleventh hour deception and get the best mortgage terms available. The purpose of the substitution of disclosure forms is to enable buyers to competitively shop for a mortgage that will not interfere with their standard of living — something buyer’s agents are concerned about but not sellers or lenders.
In addition to these avuncular educational efforts, numerous state and federal government agencies openly encourage the practice of submitting mortgage applications to multiple lenders.
A Mortgage Shopping Worksheet needs to be completed by the buyer with the assistance of their agent. The worksheet contains a list of all the mortgage variables commonly occurring on origination and during the life of the mortgage.
On submitting mortgage applications to a minimum of two lenders and receiving their Loan Estimate form, the buyer possesses all the information needed to fill out Mortgage Shopping Worksheets. Once complete, the buyer and their agent can readily compare the terms offered by the competing lenders. Select the most competitive lender, and if they remain competitive, close with that lender.
In conjunction with a Mortgage Shopping Worksheet, the CFPB toolkit will go a long way towards educating buyers before they take on the largest financial decision of their lives. The CFPB toolkit is available here.
