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ReloTax: Understanding The New Closing Disclosure Forms

As some of you may already know, there are many significant changes this year, including all new tax rates and tables. Further, the government relocation and FTR rules have been updated including new Canadian tax revisions as well. And, as we’ve discussed for the past few months, the new 2015 Closing Disclosure form – the one replacing the HUD-1 which becomes effective October 3, 2015 is included and discussed in great detail.

Today’s post, courtesy of Dave Oltman at Relocation Taxes, LLC, highlights some important things to note about the disclosure forms:

Mortgages are complex transactions that may include risky features, so the consumer financial protection bureau

Relocation Tax Expert

David Oltman

(CFPB) has issued a rule that will simplify and improve disclosure forms for mortgage transactions.  Consumers previously received different, but overlapping federal disclosure forms with the terms and costs of mortgage loans. Because these forms are confusing for many people, Congress directed the CFPB to create new forms. The rule replaces the previous forms (HUD-1) with two new forms: the Loan Estimate, given three business days after application, and the Closing Disclosure, given three business days before closing. Lenders will be required to give consumers these forms for mortgage applications submitted on or after October 3, 2015. Specific benefits of the new forms and rules include:

  • Combining several forms and additional statutory disclosure requirements into two forms. This will reduce paperwork and consumer confusion.
  • Using clear language and design that will help consumers understand complicated mortgage loan and real estate transactions.
  • Highlighting the information that has proven to be most important to consumers. On the new forms, the interest rate, monthly payments, and the total closing costs will be clearly presented on the first page. This will make it easier for consumers to compare mortgage loans and choose the one that is right for them.
  • Providing more information about the costs of taxes and insurance and how the interest rate and payments may change in the future. This information will help consumers decide whether they can afford the mortgage loan and the home, now and in the future.
  • Warning consumers about features they may want to avoid, like penalties for paying off the loan early or increases to the mortgage loan balance even if payments are made on time.
  • Making the cost estimates consumers receive for services required to close a mortgage loan more reliable, for example, appraisal or pest inspection fees. The rule prohibits increases in charges from lenders, their affiliates, and for services for which the lender does not permit the consumer to shop unless a specific exception applies. Examples of the specific exceptions include when information provided by a consumer at application was inaccurate or becomes inaccurate, or when the consumer asks for a change in the services.
  • Requiring that consumers receive the Closing Disclosure at least three business days before closing on the mortgage loan. Currently, consumers often receive this information at closing or shortly before closing. This additional time will allow consumers to compare the final terms and costs to the terms and costs they received in the estimate. That will better equip them to raise any questions before they go to the closing table.

This post should not be considered tax advice. Be sure to consult with a tax expert directly. We also suggest that you obtain a copy of Relocation Taxes’ new 2016 ReloTax book.

David Oltman is the Chief Compliance Officer and Co-Founder of Ineo/Relocation Taxes LLC. He is an expert in the field of corporate relocation tax and technology, including gross-up software and personal income tax return preparations. David can be reached at oltman@relotax.com or 203-529-3020. Or,  connect with David on LinkedIn or Twitter!

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