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From a lender's newsletter comes this announcement.

For years, consumers were provided with two disclosures at application designed to explain the cost of the loan, namely the GFE [Good Faith Estimate] and the TIL [Truth-in-Lending]. These two disclosures were created by separate federal agencies under separate acts. The GFE was under RESPA [Real Estate Settlement and Procedures Act] and administered by HUD [Department of Housing and Urban Developnent] and the TIL was under TILA [Truth in Lending Act] and administered by the Federal Reserve.

It's always been cumbersome to explain the two disclosures and there's been wide consensus that the two forms confuse consumers. Mortgage industry trade groups have lobbied for reform to no avail. It was simply not possible to get two federal agencies on the same page--pun intended. Loan originators adapted and accepted and learned creative ways to explain what the government was attempting to explain.

Enter the Consumer Finance Protection Bureau [CFPB] and the "Know Before You Owe" public initiative.

http://www.consumerfinance.gov/knowbeforeyouowe/

The CFPB has oversight over HUD and the Federal Reserve and, in fact, they were mandated by Dodd-Frank [Wall Street Reform and Consumer Protection Act of 2010] to create a new disclosure that essentially marries the GFE and the TIL. They did exhaustive research to create the new disclosure, reaching out to the mortgage industry for feedback as well as conducting consumer testing. In my opinion, they did a good job on this one. One less disclosure is a plus right out the gate. One calendar for counting time frames is a welcome change and the new Loan Estimate clearly identifies the cash needed to close and reflects credits toward closing costs.

http://files.consumerfinance.gov/f/201311_cfpb_kbyo_loan-est...

Closing disclosures are being changed too. Replacing the final TIL and HUD-1 will be the Closing Disclosure. The new Closing Disclosure must be delivered 3 days prior to close. In other words, a purchase transaction will have a 3 day waiting period similar to the 3 day rescission period a refinance has today. And it has a tolerance variation threshold that if exceeded will require re-disclosure and another 3 day waiting period.

On a happier note, the final rule expanded the tolerance threshold significantly from the proposal. Believe me, had they not done this, escrow closings in California would have looked like table fundings. The expansion of the tolerance should mean much less disruption to the way we close escrows in our state.

The mortgage industry will soon have to explain what a TIP is in addition to the APR. TIP is the acronym for Total Interest Percentage. This is explained as "The total amount of interest that you will pay over the loan term as a percentage of your loan amount." In the loan estimate example, the CFPB shows a TIP rate of 69.45%! While we're on the topic, the CFPB also gave us a brief and nifty explanation of the APR. It is simply, "Your costs over the loan term expressed as a rate." Then they add, and I get a chuckle out of this part, "This is not your interest rate." I think someone from our industry must have told them that's how we've explained it for years.

For a synopsis on other items that changed from the proposal to the final rule read this curiously titled post from the CFPB Disclosure Team--The Explainer.

http://www.consumerfinance.gov/blog/explainer-how-the-final-...
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