Starting this weekend consumers will receive the new Loan Estimate which replaces the Good Faith Estimate and the Truth-in-Lending disclosures. The new form combines all the fees from the GFE and the APR and loan costs information from the TIL.
The purpose of this new form is to clearly detail to you all the key details of the proposed loan, so you “Know Before You Owe.” Before you shrug this off as just another disclosure form, it is important to note that there are several new key features that will protect you and hopefully educate you about the loan you are applying for.
It will make is easier for you to shop for the best loan:
Lenders are now required to provide you the new Loan Estimate without requiring you to provide ANY income or asset documentation. The government changed the definition of what constitutes an application. When a consumer provides a minimum 6 pieces of information needed to provide an estimate, the lender is required to provide it to you within 3 business days of receiving your information. The 6 items required are:
· Your Name
· Your Social Security Number (to obtain a credit report)
· Your Income
· The Subject Property Address
· The Proposed Loan Amount
· An Estimated Value of the Property
More than an Estimate, it’s a Commitment:
The new Loan Estimate requirements are very strict on lenders and the fees they provide you. It is not only an estimate, but a commitment from the lender to the borrower that the fees they provided you in the estimate were obtained in good faith and with due diligence. A lender cannot claim they believed a fee to be lower and a simple “sorry” allows them to increase that fee. Although the information you provided to get the estimate was unverified, unless that information materially changes the terms the lender offered you, they must live up to what they disclosed.
If after the lender receives your income, assets, and the appraisal, that information would change the estimate provided, the lender does have the right to issue a revised Loan Estimate. Examples would be an appraisal coming in low and it would change to loan-to-value of the new loan, or insufficient income requires that you switch to another loan program.
The new Loan Estimate also provides disclosure of anticipated payments in the future.
In 5 Years How much you will pay in principal, interest, MI, and loan costs.
How much principal you will have paid off.
APR Now clearly states this is not your interest rate.
Total Interest % A fancy new calculation showing the total interest paid over the life of
the loan as a percentage of the original loan amount.
Other updated, corrected, or enhanced features include:
· Clearly states which services in the transaction you can shop around for.
· Now shows your estimated funds to close (missing from the old GFE – oops!)
· Visual enhancements to clearly show loan amount, rate, and monthly payments.
· Easier to read notices if there a pre-payment penalty, balloon payment, etc.
Some General Concerns:
If you don’t have an email address, it will really slow down the process. I know you reading this have one, since that’s how you received this newsletter. But for parents, and those of a generation where email is not something they are proficient in using, they will need your help. Also, if you are traveling, and don’t have access to your email, that will present problems as well. Built into the new disclosure system are safeguards for the consumer that provide you 3 days to review cost disclosures before the lender can move to the next step. There is an additional 3 days delay if the lender has to physically mail items to. If you do not check your email regularly, and miss the period to acknowledge receipt of electronic disclosures, you will be placed into the 3 extra days group.
Despite all the months of preparation lenders and their software vendors have had, this is a major change in how disclosures are generated, and it will cause delays. I took 4 classes, which is 4 more than most in our industry, and I was challenged completing my first one. I spent an additional 1½ hours on a file just to make sure everything was accurate. The two largest mortgage software venders are issuing updates over the weekend and again next week for their software because even with beta testing, found errors in the code of the programs 90% of industry uses.
And last, but maybe the most important point I can convey to you, is that each lender is dealing with this compliance issue differently. These new disclosures have general rules on what the forms must contain, but leave it to the individual lender to figure out how to implement these new changes. After reviewing the procedures from over a dozen different lenders, it is clear that some lenders “get it” and some have made the process so complex, it will bring their process to a halt. We have already received notices from many lenders that due to the new “complex” compliance rules, to expect delays. Many have suspended shorter rate lock periods because of their anticipated delays in moving the loan process along.