It’s going to be easier to understand your mortgage soon, but as blogger Holden Lewis from Bankrate.com explains, it’s going to be a challenging time for your lender.
In 10 months, it’s going to be easier to shop for a mortgage. And those intervening 10 months aren’t going to be easy at all for mortgage companies.
The good news for consumers comes Aug. 1. On that date, the mortgage industry will switch over to a new (and much improved) set of mortgage disclosures that will be given to consumers. The bad news for lenders is what it means for them in the meantime: hard work, innumerable meetings, and a lot of angst.
Bye, GFE and HUD-1
When you apply for a mortgage, the lender gives you two federally mandated disclosures: the Good Faith Estimate, and the Truth in Lending statement. Before you close on the loan, the lender gives you a settlement statement called the HUD-1. None of these documents is easy to understand.
All of those documents go away beginning next August. The Good Faith Estimate and Truth in Lending statement will be replaced by a document called the Loan Estimate. The HUD-1 will be replaced by a document called the Closing Disclosure.
A step forward
The new documents represent a tremendous improvement that will benefit borrowers. The Consumer Financial Protection Bureau designed the new disclosures in a long process that involved seven rounds of focus group testing in English and Spanish.
When the CFPB finished designing the new disclosures early this year, the agency gave lenders about 19 months to update their software and their processes. I found the long lead time frustrating. Why didn’t the CFPB give lenders three months or six months to implement the changes? After all, I thought, the project is merely a matter of changing some forms.
Wrong. For lenders and their business partners, the switchover is a complex, yearlong project. In National Mortgage News, Mark Fogarty wrote a couple of months ago: “It would be easy to be nonchalant about getting a couple of document changes done by Aug. 1, 2015, but that would be unwise, industry sources say.”
Help is on the way for lenders
Numerous companies offer consulting services to guide lenders through the changes. Wolters Kluwer Financial Services pitches itself this way: “It’s time to update your software systems, work with vendors, review compliance policies and procedures, and train staff. Whether you just need a few questions answered or a lot of guidance, we can help. We’ve proactively reviewed all stages of this regulation to understand its full impact on your business.”
Software and consulting firm Ellie Mae uses a cartoon image of a fearsome tyrannosaurus rex to advertise its services: “Whether it’s RESPA-TILA, or TILA-RESPA, it’s still a monster. Learn how to tame the new integrated mortgage disclosures rule by viewing our upcoming webinars.”
The CFPB has held its own webinars for lenders, too.
Aug. 1 is a real deadline
By most accounts, lenders should devote about a year to the switchover project. Because the CFPB gave lenders more than a year and a half to get the job done, I doubt that the agency will grant any extensions.