Known as the Dodd-Frank regulations, the new processes and procedures are designed to give the consumer more information about mortgage loans.  The need to have accurate documents has increased.  These changes are scheduled to take effect soon.

While the regulations and processes are designed to help consumers, there are no “last minute” corrections and if settlement figures change, closings could be delayed.

While not exhaustive, here is a brief overview of what to expect:

  • Qualification will require a debt to income ratio of 43% or less.
  • Points and fees will be limited to  a maximum cost, based on the loan amount.
  • Discount points are NOT included in the maximum allowance.
  • New mortgages cannot have negative features such as interest only or balloon payments.
  • A qualified mortgage will have a term of 30 years or less.
  • Appraisals will be provided to the borrower: upon completion or at least 3 days before closing.
  • A Loan Estimate (formerly Good Faith Estimate) will disclose the interest rate on the loan and itemized costs for obtaining the loan.  It also shows the amounts for initial escrow and monthly contributions to the accounts for insurance, PMI and property taxes.  This documentation is required to be provided to the borrower within 3 business days of loan application and at least 7 business days before closing.
  • The Closing Disclosure will replace the currently used HUD-1 form.  This disclosure will be fully itemized for easier review of fees and costs.  It will be provided to the borrower at least 3 days before closing.  If there are any items that need to be changed, it may trigger a new 3 day waiting period and could delay closing.

Overall, the Loan Estimate and Closing Disclosure will be simpler for the borrower to review the fees and will be available earlier.