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CFPB Finalizes 'Know Before You Owe' Mortgage Forms
Thursday, November 21, 2013 7:00 AM

The Consumer Financial Protection Bureau (CFPB) issued a rule yesterday requiring easier-to-use mortgage disclosure forms that clearly lay out the terms of a mortgage for a homebuyer. The new “Know before You Owe” mortgage forms will replace the existing federal disclosures and help consumers understand their options, choose the deal that’s best for them, and avoid costly surprises at the closing table.

For more than 30 years, federal law has generally required that within three business days after receiving a mortgage application, mortgage lenders must deliver two different, overlapping disclosures to consumers. At the closing stage, federal law again generally requires two forms. All of these forms contain duplicative and sometimes confusing information. The Dodd-Frank Wall Street Reform and Consumer Protection Act recognized the need to simplify and streamline this information for consumers and transferred responsibility for the forms to the CFPB.

Yesterday’s final rule requires that lenders use the CFPB’s new disclosures, puts in place rules about when the new forms are given to the consumer, and limits how the final deal can change from the original loan estimate. The forms are available in English and Spanish:

The CFPB says the forms are intended to help consumers better understand key information, including:

  • Risk factors
  • Short-term and long-term costs
  • Monthly payments

The CFPB’s rules are designed to curtail “bait and switch” tactics, where the terms change at closing, by implementing several new consumer protections:

  • Easier comparisons of the estimated and final terms of the loan
  • More time to consider choices
  • Limits on closing cost increases

The rule is effective Aug. 1, 2015 and the CFPB is already working with industry and consumers toward effective implementation. As the CFPB continues with “Know before You Owe,” it will work collaboratively with all, including other government stakeholders, to take a close look at all documents provided at closing.

The following resources are available on the CFPB website:

A factsheet about the “Know Before You Owe” mortgage disclosures

A factsheet about the testing process the CFPB used to arrive at yesterday’s rule

The “Know before You Owe” mortgage disclosure rule