The CFPB has issued an updated version of the home buying information booklet (also known as the special information or settlement cost booklet) required under RESPA and TILA. The new booklet is entitled “Your home loan toolkit: A step-by-step guide.” (The booklet it replaces is entitled “Shopping for Your Home Loan: Settlement Cost Booklet.”) The new booklet or Toolkit is designed to be used with the new TILA/RESPA integrated disclosures required to be provided for applications received on or after August 1, 2015.
Lenders are required to deliver or mail the Toolkit not later than 3 days after receipt of an application. However, in the Federal Register notice announcing the Toolkit’s availability, the CFPB encourages all market participants (such as realtors) “to provide the [Toolkit] to consumers at any other time, preferably as early in the home or mortgage shopping process as possible.” The Toolkit is designed to be distributed electronically and has interactive worksheets and checklists.
The goals of the Toolkit are to: (1) inform consumers of the steps they need to take to get the best mortgage for their individual situation, (2) help consumers understand their closing costs and what it takes to buy a home, and (3) give consumers tips on how to be a successful homeowner. The Toolkit includes the following topics:
Choosing the best mortgage for you
- Define what affordable means to you. This section includes a worksheet for the consumer to calculate their total monthly home payment. It includes their mortgage payment but also HOA fees, insurance and taxes. There is also a calculation of the percentage of the consumer’s income spent on their monthly home payment. Further, there is a worksheet which has the consumer calculate their total monthly income minus all debt payments which in addition to the monthly home payment, has the consumer deduct car payments, student loan payments, credit card payments and other payments such as child support or alimony.
- Understand your credit
- Pick the mortgage type that works for you
- Choose the right down payment for you. This section takes the consumer through the different down payment options and possibility of having PMI on the loan.
- Understand the tradeoff between points and interest rate. This section contains a table that illustrates how different “points” scenarios impact the monthly payment over the life of the loan.
- Shop with several lenders. This section includes a work sheet that aids the consumer in comparing loan offers.
- Choose your mortgage
- Avoid pitfalls and handle problems
- Shop for mortgage closing services. This section describes the various service providers in connection with the loan closing.
- Review your revised Loan Estimate
- Understand and use your Closing Disclosure. This section takes the consumer through the Closing Disclosure and describes the costs shown on it.
Owning your home
- Act fast if you get behind on your payments
- Keep up with ongoing costs
- Determine if you need flood insurance
- Understand Home Equity Lines of Credit and refinancing
The Toolkit is focused on the process for purchasing a home and obtaining a purchase money mortgage, and does not address refinances except for a mention at the end. It emphasizes the consumer’s ability to repay and the mortgage payment’s affordability. The Toolkit appears to reflect a bias in favor of fixed rate loans, a 20% down payment, and HUD counseling. It discourages loans with balloon features and prepayment penalties and encourages consumers to shop with at least 3 different lenders. Curiously, while the list of possible lenders for consumers to consider includes banks and credit unions, there is no direct mention of “Mortgage Bankers.” Instead, only Mortgage Brokers are listed. While the reference to “online lenders” might be intended to include Mortgage Bankers,” many Mortgage Bankers are not online lenders.