CFPB Updates Know Before You Owe Rule

The Consumer Financial Protection Bureau (CFPB) has announced final updates to it "Know Before You Owe" mortgage disclosure rule which went into effect on October 3, 2015.  The changes are intended to formalize guidance on the rule and provide greater clarity and certainty. 

The amendments finalized on Friday address a handful of issues within the rule.

• Before implementation of the mortgage disclosure rule the total of payments disclosure was determined using the finance charge as part of the calculation.  The rule changed the calculation to not make specific use of that charge.  The update will include tolerance provisions for the total of payments that parallel the tolerances for the finance charge and disclosures affected by the finance charge.
• The rule gave a partial exemption from disclosure requirements to certain housing assistance loans, originated primarily by housing finance agencies. The update clarifys that recording fees and transfer taxes may be charged in connection with those transactions without losing eligibility for the partial exemption and excludes those fees and taxes from the exemption's limits on costs. CFPB said this should allow more housing assistance loans to qualify for the partial exemption, encouraging their use.
• Currently, the Know Before You Owe rule is applied only to transactions secured by real property, as defined under state law. CFPB is finalizing updates to extend the rule's coverage to include all cooperative units, including those treated by state law as personal property. The Bureau says this change should simplify compliance and ensure that more consumers benefit from the rule.
• The Bureau has received many questions about sharing the mortgage disclosures provided to consumers with third parties to the transaction such as the seller and the real estate brokers. This is usual, accepted and appropriate and the Bureau is finalizing additional commentary to clarify how this can be accomplished.

"A mortgage is one of the largest financial decisions a consumer will ever make, and CFPB's rules help ensure consumers have the easy-to-understand information they need before making a decision that will significantly impact their financial lives," said CFPB Director Richard Cordray. "Our updates will clarify parts of our mortgage disclosure rule to make for a smoother implementation process for lenders and consumers."

In addition to the final rule, the CFPB is issuing a proposal addressing when a creditor may use a Closing Disclosure, instead of a Loan Estimate, to determine if an estimated closing cost was disclosed in good faith and within tolerance. This proposal is available here and comments will be accepted for 60 days after is publication in the Federal Register.