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New mortgage disclosure rules take effect

Anyone in the Philadelphia area who has used a bank loan secured by a first mortgage to purchase residential real estate in the last thirty years has dealt with several forms intended to disclose the terms of the loan. According to federal rules, lenders were required to give these forms to borrowers before the closing, but the forms often lacked correct information or were not provided until the day of closing, effectively depriving the borrowers of the intended protections. Under a new set of rules promulgated by the United States Consumer Financial Protection Bureau ("CFPB") that became effective on October 1, 2015, lenders, borrowers, loan brokers and real estate agents are learning to work with a new set of disclosure requirements and a new set of disclosure forms that apply to all residential real estate transactions.

The new rules were mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2009. Their principal goal is to ensure greater transparency in the lending process. Banks are required to provide the required disclosures not less than three days before any scheduled closing. The two forms are the Loan Estimate, which is intended to provide borrowers an opportunity to compare offers from several lenders, and the Closing Disclosure, which is intended to provide the borrower with three days to study the closing costs and raise any questions with the lender prior to the closing.

Experts who study the lending industry say that the new forms will probably serve their goal of providing more information and greater transparency to borrowers, while at the same time raise the costs of borrowing and prolong the time between signing the purchase agreement and the closing. As one realtor put it, if the bank provides accurate estimates and nothing changes, the process should work well.

Anyone who is contemplating buying a home may wish to consult an experienced real estate attorney for an explanation of the new rules or to ask questions raised by the new disclosures. Asking these questions before the closing can save both emotional and financial expense.

Source: Philly.com, "New mortgage-disclosure changes take effect," Alan J. Heavens, Oct. 7, 2015

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