New mortgage rules that are supposed to make it easier for consumers to understand and compare competing mortgage offers went into effect today and, at least in the short term, may cause confusion and delay in real estate closings.
Called the Know Before You Owe rule, the new requirements devised by the Consumer Financial Protection Bureau require mortgage application forms to be easier to understand and to present competing loan offers that help consumers make an informed decision.
Specifically, the new rule replaces four disclosure forms with two new ones, the Loan Estimate and the Closing Disclosure. The rule also requires that you get three business days to review your Closing Disclosure and ask questions before you close on a mortgage.
This CFPB video explains the process:
While the new rule should prove beneficial over time, it's likely to cause some hiccups initially. It was originally scheduled to go into effect August 1 but the CFPB granted a three-month extension to give the real estate industry time to get familiar with the new forms and the rules governing their use.
"For all the good work that has been done, we know there will be challenges ahead, especially in the first few months," said National Association of Realtors President,Chris Polychron, who said his group would "continue to communicate Realtors',and their clients' concerns to the CFPB and help ensure the new rules are carried out with as little disruption as possible to consumers and the industry."
CFPB Executive Director Richard Cordray,noted that dire predictions about the effect tighter rules would have on the housing market haven't come to pass.
“Sensible regulation that includes substantial consumer protections should foster greater trust by consumers in the financial marketplace,” he said. “If people believe they will be treated fairly rather than becoming victims of predatory lending, they can develop a renewed sense of consumer confidence.”
Cordray said,says the forms will help consumers to better understand their options, choose the deal that’s best for them, and avoid costly surprises when they get to closing.
“It is time consumers have more power in the mortgage process, and our new forms and online tools will help make that a reality,” he said.
You can learn more about the new process on the CFPB's website.