Consumer Advisory: The “Know Before You Owe” mortgage rule goes into effect Oct. 3
DENVER (Oct. 1, 2015) – Colorado consumers should be aware of how the Consumer Financial Protection Bureau’s “Know Before You Owe” mortgage rule taking effect on Saturday, Oct. 3, 2015 affects them.
The rule consolidates four existing disclosures required under the Truth-in-Lending (TILA) and the Real Estate Settlement Procedures Act (RESPA) for transactions secured by real estate into two new forms:
- The new “Loan Estimate” Form integrates and replaces the existing RESPA Good Faith Estimate and the initial Truth-in-Lending forms.
- The new “Closing Disclosure” Form integrates and replaces the existing RESPA HUD-1 and the final Truth-in-Lending forms.
It is important for all consumers and real estate professionals to be familiar with the new forms and processes as mandated under the new federal rule.
How will “Know Before You Owe” help Colorado consumers?
1. There are now clearer terms on the new mortgage disclosure forms
The rule introduces new, easier to use mortgage disclosure forms that clearly lay out the terms of a mortgage for consumers. The new Loan Estimate and Closing Disclosure mortgage forms help consumers understand their options, choose the deal that’s best for them, and avoid costly surprises at the closing table.The new Loan Estimate Form provides a good faith estimate of credit costs and transaction terms, and must be provided to the consumer within three business days of completing a loan application.
2. Fees cannot be charged upfront
The mortgage lender may not impose any fees until the consumer has received the Loan Estimate Form and has indicated an intent to proceed with the transaction (collecting the cost of the credit report is acceptable). Similarly, the Closing Disclosure Form must be provided to the consumer no later than three business days prior to consummation, in Colorado this is commonly the closing date. This form must contain the actual terms and costs of the transaction.
Even with the new rule in place, timely and effective communication among all the parties (mortgage loan originator, listing/buyer’s brokers, buyer/seller and title companies) is key to the successful completion of a home purchase.
How Colorado prepared for new mortgage rules
A joint task force made up of inter-industry trade associations and staff from the Division of Real Estate and the Division of Insurance, part of the Department of Regulatory Agencies (DORA), was formed to facilitate “best practice” guidance for Colorado real estate professionals. The “TILA-RESPA Integrated Disclosures Rule Best Practices” guide can be found on the Division of Real Estate’s website.
In an effort to streamline the process for the consumer and reduce regulatory burdens for the licensed mortgage loan originator, the Colorado Board of Mortgage Loan Originators updated Colorado’s mortgage disclosure rules. As a result, Colorado specific rules follow the new federal protocol of disclosure. Therefore, mortgage loan originators who fully comply with all the provisions of the TILA-RESPA Integrated Disclosure rule, including utilizing the appropriate federal forms, will be in compliance with Colorado specific rules and regulations. The updated Board rules will be effective October 3, 2015.
The Division of Real Estate is the licensing, regulation and enforcement agency for the real estate broker, appraiser, community association manager and mortgage loan originator industries.