November 3rd, 2015 9:17 AM by Jackie A. Graves, President
Before You Owe" is a new initiative from federal regulator the Consumer
Financial Protection Bureau (CFPB). Since October 3, 2015, it's been obligatory
for mortgage lenders to comply with the program's requirements, but you, as a
borrower, have to do nothing – except enjoy its benefits.
benefits are two-fold:
loan estimate (offer) you receive is standardized, making it simple to compare
different lenders' offers on an apples-to-apples basis.
closing disclosure, which confirms closing costs and loan details, must be
given to you three working days before closing so you can query any unexpected
items. Its key information is provided in a very similar way to that shown in
your loan estimate, meaning you can make a side-by-side comparison very easily
and spot any issues quickly.
CFPB was designing its new initiative, it commissioned a consumer survey that
unveiled an incredible fact: Nearly one in two mortgage borrowers (47 percent)
don't shop around for the best deal, instead taking the first offer a single
lender or broker gives them. That likely sees the same people who would scour
the Internet for the cheapest smartphone, or stand in line on Black Friday to
save a couple of hundred bucks on a new designer outfit or TV, wasting
literally thousands on their home loans.
gives an example. Suppose you want a $200,000, 30-year, fixed-rate mortgage
(FRM). If you take the first offer, which has a 4.5 percent interest rate, you
stand to pay $60 a month more than if you shop around and find a 4.0 percent
deal. In the first five years, you'll have thrown away $3,600 by paying too
much. And the balance you still owe on that fifth anniversary should be $1,400
higher. Worse, those losses don't end after five years: They keep racking up at
the same rate for as long as the loan lasts, potentially three decades.
Before "Know Before You Owe," you
can see why some were shy about shopping around. Loan offers may have contained
similar information, but it could be difficult to find and may have been
expressed in different ways, making comparing deals hard. Now, it couldn't be
easier to make comparisons, so you should definitely follow the government's
advice and shop
around for the best mortgage deal. And that applies to refinances,
It's been illegal for some time for lenders
to deliberately underestimate the closing costs provided in a mortgage
estimate. And, as you can see on the CFPB's website, there are strict
rules about the costs that can be changed and the ones that can't. In brief:
Those over which the lender has no control
(including the rate charged until you decide to lock it) can be changed.
Those over which the lender has limited
control can, absent a change in circumstances, rise by no more than 10 percent.
Those over which the lender has total
control (many fees, including those charged by third parties if you weren't
allowed to appoint your own) can't change.
Before You Owe" means you now receive your final closing disclosure at
least three working days before you're scheduled to close, giving you plenty of
time to raise with your lender any queries you have. And that disclosure now
mirrors the layout of the original mortgage estimate (see picture), meaning you
can put the two documents side by side and immediately see any discrepancies.
July, the Forbes website (not a noted fan of government regulation) wrote in
glowing terms about "Know Before You Owe." It said the CFPB "did
a great job revising, simplifying, designing and organizing material
information in a way that can be readily deciphered." But it went on to
make a single objection.
three-day period during which you can raise queries on the closing disclosure
is great in theory. But, if you succeed in getting yours changed, the clock is
restarted when the replacement document is issued.
example, suppose you're due to close on a Friday, and you receive your closing
disclosure on the Tuesday before. You call your lender to complain about an
issue on the following day (Wednesday), the error is acknowledged and the new
disclosure document arrives on the Thursday. You can no longer close on the
Friday because you have to wait a further three working days in case you spot
another discrepancy. Oops. You've already booked the removal truck and arranged
to have utilities connected. And your seller may well be relying on your
closing to be able to close on his or her own purchase. The knock-on effects
could be felt down a whole chain of home sales and purchases.
It could be
that, by the time you read this, the three-day glitch has been resolved. Maybe
the CFPB will have changed the rules, or lenders might have taken to delivering
closing disclosures six days ahead – or some other work-around has been put in
place. But, if that's not the case, you might find it a whole lot cheaper and
easier just to swallow any small mistakes in your disclosure.
this detracts from the program's main benefit, namely your new ability to
compare mortgage offers easily. There's no excuse now to be among the 47
percent who risk losing thousands.
By Peter Warden – To view the original
article click here