Cordray unveils ‘Know Before You Owe’ mortgage rule

by Ryan Smith21 Nov 2013

The head of the Consumer Financial Protection Bureau announced a new rule to simplify mortgage forms Wednesday – but some industry groups are calling it an undue burden on smaller lenders.

Speaking at an event in Boston, CFPB Director Richard Cordray laid out the “Know Before You Owe” mortgage rule, which will require lenders to provide simplified mortgage forms that will make it easier for the borrower to find information like interest rates, closing costs and monthly payments. The rule is scheduled to take effect in August of 2015.

“By implementing rules that allow people to better understand the terms of the mortgage deal they are being offered, the Consumer Bureau will help them shop around for a mortgage that makes sense for them,” Cordray said. “These rules give greater control to consumers so they can take charge of the decision they are about to make. The end result will be a more competitive and user-friendly shopping experience where consumers can ‘know before they owe.’”

The new rule will require loan officers to provide customers an estimated summary of costs within 72 hours of receiving their mortgage application. The new summary will also be required to provide more detail on terms like prepayment penalties and balloon payment than is currently required. Lenders will also be required to provide final disclosures at least three days prior to closing.

“People who are buying a home deserve to be the drivers of this process, not the passengers,” Cordray said. “Whether a consumer shops among multiple lenders or talks to a single lender, there are many variables to consider because not all mortgages are the same. Closing costs can vary from lender to lender; fees can vary from loan to loan. Failing to understand these differences, and make good choices about them, can have lasting consequences for buyers and their families.”

Some industry groups, however, say the rule is unduly burdensome for smaller lenders, and have pressured the CFPB to no avail to provide an exemption.

“This rule will affect every lender, every title company, and every single borrower and property seller,” Camden Fine, president of the Independent Community Bankers of America, told Bloomberg. “There won’t be any small creditor carve-outs on this rule at all.”

Take a look at the new rule here.


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