CFPB’s New “Know Before You Owe” Mortgage Forms

The Consumer Financial and Protection Bureau (CFPB) is an independent federal agency created in 2011, that holds primary responsibility for regulating consumer protection with regard to financial products and services in the U.S. They’re working toward reforming the mortgage markets.

Their Know Before You Owe (KBYO): Mortgages project resulted in finalized mortgage forms on November 20, 2013. They improve consumer understanding, aid comparison shopping, and help prevent surprises.

The new rules and forms go into effect on August 1, 2015. The final rule applies to most closed-end consumer mortgage loans (including refinances) but not to home equity lines of credit, reverse mortgages, or mortgage loans secured by a mobile home or by a dwelling that is not attached to real property. It also does not apply to loans made by a creditor who makes 5 or fewer mortgages in a year (e.g. seller-financing).

The CFPB is serious about clearing up the communication process between mortgage lenders and mortgage borrowers. Their KBYO: Mortgages fact sheet states:

“In the lead up to the financial crisis, many consumers took on loans they could not afford: When shopping for a mortgage loan, most consumers are concerned about the interest rate and their monthly payment.

This focus on short-term costs while underestimating long-term costs may result in consumers taking out mortgage loans that are more costly than they realize.” (emphasis added)

In their Detailed Summary of the Rule, the CFPB explains the history of the soon-to-be-replaced forms:

For more than 30 years, federal law has required lenders to provide two different disclosure forms to consumers applying for a mortgage. The law also has generally required two different forms at or shortly before closing on the loan. Two different federal agencies developed these forms separately, under two federal statutes: the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA). The information on these forms is overlapping and the language is inconsistent. Not surprisingly, consumers often find the forms confusing. It is also not surprising that lenders and settlement agents find the forms burdensome to provide and explain.” (emphasis added)

The Loan Estimate

The Loan Estimate will replace the Truth in Lending disclosure and the Good Faith Estimate and will be provided within 3 business days after submitting a loan application. It’s intended to make comparison shopping of both costs and features easier for consumers.

KBYO Loan Estimate

KBYO Loan Estimate

The Closing Disclosure

The Closing Disclosure will replace the final Truth in Lending Statement and the HUD-1 uniform settlement statement. It will be provided to consumers 3 business days before closing on a loan, and it will provide a detailed accounting of their transaction.

There are 3 triggers for restarting a new 3 day waiting period: a 1/8 change in APR, a change in loan product, or the addition of a prepayment fee.

KBYO Closing Disclosure

KBYO Closing Disclosure

KBYO Closing Cost Details

KBYO Closing Cost Details

Closing Disclosure Provided to the Seller Separately

Closing Disclosure provided to the Seller separately

Spanish-Language Versions

The CFPB is also including Spanish-language versions of the Loan Estimate and the Closing Disclosure. They will provide important benefits to industry in communicating with Spanish-speaking consumers.


Comparing the disclosure forms, I expect the forms will be appreciated by mortgage borrowers because they will make it simpler to understand the financials of a mortgage and the accounting of closing costs. Both of these improvements help improve our industry.

At the same time, I wish the forms would have been more communicative that low cost (quantitative factor) is not the only important comparison factor.

As anyone who has had bank accounts at two or more banks knows, not all access to money costs the same. The features and benefits (qualitative factors) vary widely among lenders and closing companies. Even at similar cost, differences may include: availability of supplementary products, customer service and communication, and overall experience.

Put plainly, you may dread the tellers, limited locations, hefty ATM fees, and lack of online statements from Bank X‘s free checking account, but you’re happy to pay a monthly fee to Bank Y for your assigned personal banker, generous payment timeframes, “accident forgiveness” fee policies, and comfortable lounges.

Having a simple and effective cost comparison is an extremely important step in the right direction, of which the CFPB has done an excellent job. Working with knowledgable, trusted, and “on your team” real estate advisors, like those at End Zone Realty, is very important too.

We’re happy to help buyers with all aspects of their home purchase, including clarifying the process, assisting with offers, negotiating contracts, explaining costs, and providing reputable contacts.

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