July 16, 2018
July 16, 2018
Do you remember the old mortgage industry standbys, the Good Faith Estimate (GFE) and the Truth-In-Lending (TIL) forms? After many decades on the scene, they’re about to fade into the dustbin of history. They were replaced by the new Loan Estimate, which essentially combines both documents into a single streamlined presentation.
The Loan Estimate has been implemented by the Consumer Financial Protection Bureau (CFPB) in an attempt to simplify mortgage disclosure documents. The new document went into effect on October 3, 2017.
And it couldn’t happen sooner, and I believe this is a positive step. The GFE and TIL were the two most confusing documents in the mortgage deck, for both consumers and mortgage employees.
The Loan Estimate contains all of the same relevant information that appears in the GFE and TIL but discloses it in simple language in dedicated boxes. A consumer will be able to more easily locate important information. Since the document will be only three pages long – compared to a total of five pages for the GFE and TIL – anything a consumer is looking for will be much easier to find.
Where consumers once had to scan through two very complicated and confusing documents to find the most basic mortgage information, they’ll now be able to find what they’re looking for with no more than a quick glance.
The new document is part of the CFPB’s Know Before You Owe mortgage disclosure rule, and long overdue.
As noted above, the Loan Estimate provides all of the same information that has been reported on the GFE and TIL for years. But here are the specifics:
This is where you will find all of the information relevant to your payment. It will include the following information:
This information has been reported on the GFE as well, but it’s somewhat buried in a very technical presentation. On the Loan Estimate, it will be unmistakable.
This section will spell out the amount of your loan, the principal and interest payment, and the actual interest rate that you are being charged. It will also clearly indicate whether or not your loan has a prepayment penalty, as well as the terms of that penalty.
This section has a specific line that will indicate whether or not your mortgage requires a balloon payment. It also indicates whether or not your loan is a fixed or adjustable rate mortgage. And it does it in plain English, by asking the question Can this amount increase after closing?>/em>
It will also indicate whether or not your interest rate is locked, and if so when the rate lock will expire.
The GFE provided this information as well, but it did so following a very long laundry list that included two pages of various confusing charges. The Loan Estimate provides a concise summary that will show your closing costs in a single number, as well as the total amount of cash required closing – net of any deposits that you have made on the purchase of the home or toward the mortgage application.
The Loan Estimate provides this breakdown, much the way the GFE does, but it does so without giving it the dominant position on the document.
It will detail lender charges, for example, origination fees and application fees payable to the mortgage lender. It will also include third-party charges, such as attorney fees and appraisal charges.
Previously, this information was primarily provided by the TIL. But the problem with the TIL was in the presentation. It disclosed the necessary information but did so in a format that very few people could ever understand. As a result, most consumers simply ignored it. When they want to know rate information, they’d simply ask an employee of the mortgage company.
With the Loan Estimate, that information will be more obvious. The document will present, in summary fashion, the annual percentage rate (APR), as well as a five-year projection that will reflect the total interest paid as well as the amount of the principal paydown during that timeframe. This is probably more relevant to consumers than providing similar information over the 30-year life of the loan. Since most homeowners will refinance or sell the home in about five years, this can represent valuable information.
In summary, the Loan Estimate provides every bit of the information that’s available in the good faith estimate and truth-in-lending documents. But you’ll be able to read and understand the Loan Estimate.
That’s progress – finally!