‘Know Before You Owe’ Rule Goes into Effect on August 1

John Jordan | June 2015

WASHINGTON, DC—The National Association of Realtors characterized a recent announcement by the Consumer Financial Protection Bureau as a good first step when it promised “sensitivity” to companies that make a good-faith effort to comply with the new Truth in Lending Act and Real Estate Settlement Procedures Act Integrated Disclosure regulation that goes into effect on Aug. 1.

The “Know Before You Owe” rule calls for consumers to receive new mortgage closing disclosure documents three business days before closing. To assuage fears of closing delays caused by the new disclosure document, the CFPB stated in a blog post that there are just three changes that would require a new three-day review period:

  • Increasing the annual percentage rate (APR) by more than 1/8 of a percentage point for a fixed-rate loan or 1/4 of a percentage point for an adjustable-rate loan (decreasing the interest rate or fees doesn’t cause a delay);
  • The addition of a prepayment penalty; and
  • Changes in the loan product, from a fixed-rate to an adjustable-rate loan.

“However, many things can change in the days leading up to closing that won’t require a new three-day review period, including typos on the forms, problems discovered on a walk-through, and most changes to payments made at closing, including changes that require seller credits, the CFPB stated in the blog post on June 3.

National Association of Realtors President Chris Polychron, said in response to the CFPB’s announcement, “The action announced today by the CFPB is a welcome first step toward clarifying the changes coming to real estate closings August 1. NAR appreciates the ‘sensitivity’ offered by the CFPB to companies making a good-faith effort to comply with the new TILA-RESPA Integrated Disclosure regulation. NAR will continue to work with the CFPB to minimize any possible market disruptions or uncertainty when the rule takes effect August 1, during the busiest transaction season for real estate.”

He added, “While NAR appreciates the CFPB’s understanding of the difficulties involved in making a change of this magnitude, we hope that continued dialog with U.S. Senate and House leaders will result in a solution that allows the lending industry and CFPB to address any implementation issues and minimize costly closing delays for home buyers and sellers.

NAR credited U.S. Reps. Blaine Luetkemeyer, R-MO.; Andy Barr, R-KY.; Carolyn Maloney, D-N.Y.; Steven Pearce, R-N.M.; Brad Sherman, D-CA.; and U.S. Sens. Tim Scott, R-S.C.; and Joe Donnelly, D-IN., who collectively brought the issue to the attention of the CFPB.”

John Jordan
Editor, Real Estate In-Depth