New Federal Rules to Simplify Homebuying 

‘Know Before You Owe’ rules start Oct. 3; consumers will find new loan disclosure forms easier to use and understand.

Change is coming to the home lending business, and POV asked Mary Ann Callahan, operations executive for PNC Mortgage, to talk about the new rules.

Starting on Oct. 3, homebuyers will receive more information earlier in the process when applying for mortgages and some home equity loans. The Dodd-Frank Act mandated the changes, which will be overseen by the Consumer Financial Protection Bureau.

Currently, homebuyers are given at least four overlapping and complex forms. Beginning Oct. 3, consumers will receive two forms, the Loan Estimate and the Closing Disclosure form. The new forms are easier to use and understand.

POV: What are the changes and how will the process will be different for homebuyers?

Callahan: They will see a more consumer-friendly process that will give them more time to consider and compare the loan terms. Ultimately, we hope homebuyers will develop a better understanding of the total obligation, monthly payments and other details such as late fees and prepayment penalties. It will also be a more efficient process.

For example, the customer will receive the loan estimate within three business days of application. This kind of information early in the process will make it easier for them to shop around for the terms and rates that best fit their needs.

The Closing Disclosure form must be received by the homebuyer three business days before closing. In the past, they only received loan amount, interest rate and monthly payment in advance, with the rest of the settlement information given at or near closing. The new disclosure form outlines the terms, interest rate and other information, such as appraisal charges and pest inspection fees, which might not have been seen until the time of closing. 

POV: Many reports say the changes are good for homebuyers and the banks. Can you explain?

Callahan: The CFPB calls this initiative “Know Before You Owe” and we support these measures for our customers and the bank. Homebuyers will be able to read everything ahead of time and ask questions if something is unclear. They should feel more informed and comfortable with what is probably the biggest financial transaction of their lives. If for example, you are looking to see whether the loan has prepayment fees, it’s in large type at the top of the page. 

For the lending institutions, it levels the playing field – everyone will play by the same rules, use the same language and forms so customers can comparison shop more easily.

POV: What will the transition to the new rules be like for consumers?

Callahan: These rules take effect with applications filed on or after Oct. 3. The process is intended to be faster once lenders are up and running. Financial institutions have been working on this project for quite a while, so any disruption should be minimal.

We have worked hard to educate our employees, customers and real estate professionals through training sessions, newsletters, focus groups and webinars. We’ve been working on this since March 2014, and we are ready.

POV: What’s your #1 tip about the home lending process, especially for a first-time homebuyer?

Callahan: Educate yourself. Find a real estate professional and loan officer you can connect with and trust. Shop around like you would for any big purchase and get more than one estimate. Ask questions until you understand the terms. Understand not only your monthly obligation but the other aspects of the loan that may affect your bottom line. These new rules are going to be a big help in that process.

Mary Ann Callahan of PNC Mortgage says the changes will simplify the homebuying process

Two Easy Forms Instead of Four

Loan Estimate form - lists interest rate, all fees, and estimated closing costs. It is also clearer about prepayment penalties, balloon payments or possible changes in interest rates.

Closing Disclosure form - final figures for closing costs, prepaid taxes and insurance, payments, fees and mortgage terms, plus the costs buyer and seller are paying.