New mortgage disclosure rules could change rhythm of closing process

Shopping for a new home now? Or planning to go house hunting this spring? You will want to pay attention to some new mortgage disclosures that rolled onto the scene beginning this month.

The goal is to protect consumers from taking on too big of a mortgage, rushing into a loan before they understand the real cost or signing documents without realizing they're agreeing to some cumbersome conditions.

"It's designed to bring the prospective home buyer into a better position to understand the whole transaction," said Andy Slettebak, director of lending for the nonprofit NeighborWorks America.

Janneke Ratcliffe, assistant director of the Office for Financial Education at the Consumer Financial Protection Bureau, said the new disclosures are an improvement compared with previous disclosures. They were created to be easier to read and give consumers more information up front about the homebuying process. Three key features, she said, are:

• A lender now must provide you a loan estimate form within three days of receiving your application.

The three-page loan estimate discloses the estimated costs of taxes and insurance and how the interest rate and payments may change in the future. You could spot potential risks associated with the loan, such as if this particular product possibly includes a penalty for paying the loan off early. Or maybe there's a balloon payment — a larger-than-usual one-time payment at the end of the loan.

One key bit of detail: This form allows you to better compare loans by seeing how quickly you'd reduce the loan principal in five years. You'd see the total mortgage-related costs over five years.

Before you receive this new document, you need to provide the lender with your name, your income, your Social Security number, the property address, an estimated value of the property and the desired mortgage.

• Consumers must receive their closing documents at least three days before closing so they have a real chance to review the paperwork.

Here's where some extra consumer protection could shake up the process a bit. The new three-day window gives you a chance to compare your final terms to what you received earlier in that loan estimate. You'd receive a five-page closing disclosure.

You'd know exactly what cash you need to bring to the closing table. You'd also want to check such things as your interest rate, loan amount and monthly payment. You can see what you'd be charged for a late payment.

Douglas Robinson, a spokesman for the nonprofit NeighborWorks America, said some consumers had complained during the foreclosure crisis that the closing documents brought to the table were different from what was presented earlier.

Some closings could take longer while title companies gain more experience, according to Bankrate.com. So borrowers could want a longer rate lock of 45 days or 60 days, instead of a 30-day lock, given some uncertainties.

Mike Lyon, executive vice president of operations for Quicken Loans, said the way he's reading the regulations a customer would need to acknowledge that he or she received the disclosure documents electronically in order to close more promptly. If not, that closing could string out to seven business days because of the way the rules are written.

The CFPB's compliance guide notes that if the disclosure is provided in person it is considered received on the day it's presented. If it is mailed or delivered electronically, though, the consumer is considered to have received the closing disclosure three business days after it is delivered or placed in the mail. And then, the consumer has three days to review after that, stringing out the process.

About 97 percent of Quicken's clients receive closing documents electronically via the company's MyQuickenLoans website, where the customer can instantly acknowledge the disclosure. If the consumer confirms receipt of documents received electronically, the creditor can consider it received on that date. And the closing could take place more quickly.

Lyon said there could be a learning curve when it comes to the timing.

• Consumers can do more research online before shopping for a house or mortgage.