Know Before You Owe

By: Santander Mortgage Development Officer, Derrek Fink

What is KBYO? New text speak? No – new mortgage speak!

Know Before You Owe – and here’s what you need to know!

For more than 30 years, we have been hampered by the “twos” under Federal law:

  • Two separate disclosure forms (Good Faith Estimate and Truth in Lending disclosure) when applying for a mortgage; and
  • Two separate forms (Final Truth in Lending disclosure and HUD-1 Settlement Statement) at or shortly before closing on the loan; and
  • Two different government agencies created these forms separately, under two federal statutes – RESPA and TILA

Because the language in these forms was sometimes inconsistent and in some areas covered the same information, consumers found them confusing and as lenders and realtors we often found them hard to explain.

We all admit applying for a mortgage can be daunting and sometimes confusing, so the Consumer Financial Protection Bureau, (CFPB) as required under the Dodd Frank Act, set out to create new forms, in effect taking the information in four previous forms and whittling it down to two new disclosures that are intended to be much simpler for consumers to understand. These two new disclosures are the Loan Estimate, which must be provided to customers no later than three business days after they submit a mortgage application, and the Closing Disclosure, which must be provided to customers at least three business days before closing.

The CFPB also sought to ensure that the Loan Estimate and the Closing Disclosure are designed to work with each other. Both disclosures are written in language that is clear and concise, and the overall layout is easier for the customer to navigate through to locate the interest rate, monthly payment amount and the actual costs of the mortgage loan they are seeking. One of the CFPB’s goals was to provide all of the financial information to the customer in the least amount of forms which would allow them to clearly decide whether they could ultimately afford the loan. These forms also make it easier for them to compare several offers side-by-side.


Specific benefits:

  • Four forms merged into two concise ones – less paper = less confusion
  • Clear language and format that is easy to read and navigate through to find all important information – interest rate, monthly payments, total closing costs
  • Spelling out important information about taxes, insurance and how payments could potentially change in the future
  • Clearly highlighting any potential applicable penalties – such as early loan payoff
  • Explaining cost estimates for such services as appraisal or pest inspection fees

Requiring that the customer is provided the Closing Disclosure at least three business days before closing on the mortgage loan, should alleviate the anxiety caused when the consumer receives this information at closing! The three days will give consumers time to review and better prepare them for settlement.

Effective date

This rule is effective August 1, 2015. The final rule applies to applications submitted on or after August 1, 2015.

Go to these links to see the new Loan Estimate and Closing Disclosure