The Consumer Financial Protection Bureau has issued various updates to the ‘Know Before You Owe Rule’ to make the implementation process smoother. The goal of the rule is to make sure consumers understand what they are getting into when taking out a mortgage. However, the mortgage industry had trouble with different aspects of the rule, which have been addressed in the new updates.
The problems that arose included a lack of clarity regarding how certain requirements should be applied, which made the implementation process difficult. Thus, consumers couldn’t fully benefit from the rule in question. With the new updates, the CFPB has provided formal guidance and made implementation simpler.
What Issues Do the Updates Address?
The original ‘Know Before You Owe’ rule went into force on October 3rd, 2015, which led to consumers receiving simpler forms when they applied and closed on a mortgage. However, there was a lot of uncertainty and lack of clarity, which led to many lenders dragging their feet.
The new amendments issued by the CFPB, which are slated to go into effect in October 2017, clarify certain issues, such as:
- The inclusion of a tolerance provision for the total of payments disclosure meant to clarify whether the error tolerance applied to the total of payments disclosure as well as to the finance charge. The update states that the finance charge tolerance will be applied to the calculation of the total payment;
- Transfer taxes and recording fees will no longer count towards the cap on costs the consumer can pay, making it easier for lenders to work with Housing Finance Agencies;
- All transactions that involve cooperative units will be subject to TRID disclosures, and not just those with “real property” provided as security.
- The updates also state that the CFPB will provide further clarification regarding when a lender can share the TRID disclosures given to consumers with parties not involved in the transaction.
The aforementioned changes are the more significant ones, though many minor modifications were made.
While the amendments might not seem as if they benefit the consumer directly, they do help clarify the situation for lenders. The latter can no longer use a lack of clarity and uncertainty in how to apply the rule as an excuse for delays.
The amendments go into effect in October 2017. Until then, a Chicago real estate lawyer might have difficulty citing the rule when representing an uninformed consumer.
