Say goodbye to the Good Faith Estimate (GFE) and the HUD-1 Mortgage Disclosures

Good news for consumers! New integrated and simplified mortgage disclosures must be implemented by August 1, 2015.

Kristin Kleimann, Licensed Realtor and Consultant with Kleimann Communication, Inc.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) mandated the Consumer Financial Protection Bureau (CFPB) to combine and simplify existing mortgage disclosure forms. While the new forms and accompanying regulation rule were released in November 2013, lenders have until August 1, 2015, to implement the new forms and regulation rule.  

To be an educated consumer or to be able to assist and educate consumers, here are some key points both consumers and industry professionals should know: 

The Good Faith Estimate (GFE), the HUD-1, and some aspects from the Truth-in-Lending Act (TILA) disclosure have been replaced by a pair of new documents--now known as the “Loan Estimate” and “Closing Disclosure.”  

The new forms were rigorously tested, refined, and validated using consumer and industry feedback in order to ensure they are easier to use and understand.  In addition, they were designed to be used as a consumer tool to shop for a mortgage as well as to compare costs from loan application to closing.

 The key benefits of the new forms and rules include:

• “Combining several forms and additional statutory disclosure requirements into two forms will reduce paperwork and consumer confusion. 
  
• Using clear language and design that will help consumers better understand complicated mortgage loan and real estate transactions. 
  
• Highlighting the information that has proven to be most important to consumers. On the new forms, the interest rate, monthly payments, and the total closing costs will be clearly presented on the first page. This will make it easier for consumers to compare mortgage loans and choose the one that is right for them. 
  
• Providing more information about the costs of taxes and insurance and how the interest rate and payments may change in the future. This information will help consumers decide whether they can afford the mortgage loan and the home, now and in the future. 
  
• Warning consumers about features they may want to avoid, like penalties for paying off the loan early or increases to the mortgage loan balance even if payments are made on time. 
  
• Making the cost estimates consumers receive for services required to close a mortgage loan more reliable, for example, appraisal or pest inspection fees. The rule prohibits increases in charges from lenders, their affiliates, and for services for which the lender does not permit the consumer to shop unless a specific exception applies. Examples of the specific exceptions include when information provided by a consumer at application was inaccurate or becomes inaccurate, or when the consumer asks for a change in the services. 
  
• Requiring that consumers receive the Closing Disclosure at least three business days before closing on the mortgage loan. Currently, consumers often receive this information at closing or shortly before closing. This additional time will allow consumers to compare the final terms and costs to the terms and costs they received in the estimate. That will better equip them to raise any questions before they go to the closing table.” 
  

From CFPB’s publication, “What the new simplified mortgage disclosures mean for consumers.” (November 20, 2013)

 To see what the new disclosures will look like, visit:

For the Loan Estimate (replacing current Good Faith Estimate and initial truth-in-lending):
http://files.consumerfinance.gov/f/201311_cfpb_kbyo_loan-estimate.pdf

For the Closing Disclosure (replacing current HUD-1 and final truth-in-lending):
http://files.consumerfinance.gov/f/201311_cfpb_kbyo_closing-disclosure.pdf

Additional Information 

 For more information on CFPB’s “Know Before You Owe” project, please visit:
http://www.consumerfinance.gov/knowbeforeyouowe/

For more information about the testing of the disclosures, please visit:
http://files.consumerfinance.gov/f/201311_cfpb_factsheet_kbyo_testing.pdf

About the Author 
Kristin Kleimann is a licensed Realtor in the State of Colorado with Edelweiss Realty, Co. She is also a consultant with Kleimann Communication Group, Inc. who collaborated with the Consumer Financial Protection Bureau to design and test these disclosures. She specializes in helping clients navigate the complex real estate buying and selling process and is a proponent of Realtor and consumer education.

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