TILA-RESPA: The Basics of 2015 Mortgage Disclosure Reform

Photo Credit: MidCentArc via Compfight cc

Photo Credit: MidCentArc via Compfight cc

There’s a lot to consider when you decide to take out a home loan. It’s all very complex, and if you’ve never gone through it before, the entire process can be especially overwhelming. Both seasoned homeowners and first-time buyers share one thing in common: when you work with a lender, you operate largely on blind faith. Of course, you’ll ask your Realtor® for referrals, and you’ll do your due diligence before committing to a relationship with a lender, but it all boils down to ethics and understanding. You trust that the lender will behave ethically, which includes making sure that you understand what your mortgage loan entails.

That hasn’t always been the case. In years past, there were countless people who signed off on mortgage loans without having any idea what they were really getting into. The result, as you surely know, was a record-breaking number of subprime loans and people who were suddenly unable to afford their monthly house payment. The housing market has since experienced drastic improvements, though, and the Consumer Financial Protection Bureau is determined to develop and sustain a better way of managing home loans.

To that end, new mortgage disclosure reform was finally put into effect on October 3, 2015.  The overarching objective of these changes is to disclose the details of a home loan in simpler terms that the buyer can easily comprehend. The former “Good Faith Estimate” has now been replaced by a “Loan Estimate” document that includes all of the numbers that were included on the old document, as well as answers to questions such as, “is it possible for this amount to increase after closing?” and “Does this loan have a pre-payment penalty or balloon payment?” The Loan Estimate must be delivered or placed in the mail no more than three business days after receipt of your mortgage application.

Another aspect of the 2015 mortgage disclosure reform addresses the shortcomings of the former HUD-1 form (more commonly known as a settlement statement). This new closing disclosure will replace the HUD-1, and it will include a recap of everything that was found in your original loan estimate form, along with loan cost, origination fees, and a detailed breakdown of prepaid insurance, taxes, and recording fees.  This form will be given to you no less than 72 hours before closing.  Included with it, you will find a document providing an overview of any additional loan information that you may need to know, including:

  • Will your bank allow another party to assume the loan?
  • Will you (the borrower) have the ability to make partial payments?
  • Does your loan include a “negative amortization” feature?

Because mortgage lending is so inherently complicated, one could argue that no amount of disclosure will ever make the process easier. However, the need for consumers to stay informed is more important now than it has ever been before, and these forms aim to accomplish exactly that.

If you’re looking for a trusted mortgage lender in Northern New Jersey, our team would be happy to provide a few referrals, as well as some tips for making the loan process go as smoothly as possible.  Contact Maggee directly at 973-879-9711 or via email at maggee@migginsrealestate.com.