New Forms and Rules are Designed to Protect Reverse Mortgage Borrowers Consumers

The Consumer Financial Protection has put together a summary of the new rules and forms that potential Reverse Mortgage borrowers will encounter, in order to better prepare these borrowers for the process ahead.

Some highlights of the new information:

New rules and forms are aimed at making mortgage information easier for borrowers to understand are scheduled. These new forms will debut on August 1st 2015. The new forms include a comparison of loan terms so that borrowers will be able to determine whether final terms are significantly different from a lender’s initial estimate.

The Dodd-Frank financial reform law, passed by Congress in 2013, directed the Consumer Financial Protection Bureau to combine older disclosure documents that had been required by two different federal laws. Forms based on the Truth in Lending Act and the Real Estate Settlement Procedures Act have not been organized anew and will be used for all HECM loan applications submitted on and after Aug. 1.

Andrew Pizor, a lawyer with the National Consumer Law Center,  said “The forms are going to look very different. They look a lot nicer and easier to understand.” Representatives of mortgage lenders also believe that the new forms are an improvement on the old forms because they have been designed to be complementary which allows borrowers to easily put them side by side for easy reference. “They can easily compare and see if anything has changed” one lender said when referring to these forms.

Under the new Reveres Mortgage rules, borrowers will receive a newly designed loan estimate no more than three days after submitting an application. The form with the estimate will include information such as the loan amount, interest rate, loan costs and monthly payment.

Then, at least three days before a closing is scheduled, applicants must receive a closing disclosure which will give them time to review the terms of the loan and ask questions. The five-page disclosure is intended to summarize the terms of the loan and list what the borrower will need to pay at closing. Currently, such information is often not shared with a borrower until just before or even at the closing, at a time when the borrower feels that he’s under pressure to sign documents and complete the loan and doesn’t have the time or the emotional strength to back out of the signing.

After that disclosure, if any items change — an increase in the annual percentage rate, an addition of a prepayment penalties or a move from a fixed-rate loan to an adjustable-rate loan — the borrower must be given an additional  three business days to review the loan terms.

The bureau finalized the new rules in late 2013 but delayed implementation until August 1st 2015 to give the mortgage industry time to prepare. Some lenders and other industry participants have indicated that they are worried that adoption of the new forms and rules may cause delays for borrowers. The CFP, however, believes that any disadvantages that are caused by the new forms and rules are more than compensated for by benefits to potential borrowers. Bureau director, Richard Cordray said that “most market players have put themselves in position to be ready by August, and others are getting ready as well.” Relating to lenders who are asking for a grace period to allow them to get used to these new rules, CFP officials are unsympathetic. “They have had a lot of time to get ready,” Pizor noted.