New mortgage rate and fee disclosure requirements set to go into effect this fall are meant to help borrowers understand the terms of their home loans before they sign their mortgage contracts, but the rules also likely will slow the process or lead to delays in transactions, some loan officers and residential real estate professionals say.

The disclosure rules, nicknamed Know Before You Owe, are scheduled to go into effect nationwide on Oct. 1.

The Consumer Financial Protection Bureau will combine two disclosure documents and replace another currently required separately under the Truth in Lending Act of 1968 and the Real Estate Settlement Procedures Act of 1974.

The changes will mark the most significant changes to the documents since the enforcement of the acts was placed under the jurisdiction of the newly formed CFPB in 2010, says Jackie Cardle, a real estate lending manager with Spokane-based Global Credit Union.

Cardle says the new rules will benefit borrowers in that they will know how much their mortgage payments will be and how much cash they will need to bring to closing.

“Those are two necessary items,” she says. “So we’re excited about that change.”

A looming concern about the new requirements, though, is that certain changes in rates and fees between the initial loan estimate and the final closing disclosure could delay transactions.

“How do you quote with absolute accuracy?” Cardle says, “Even consumers that request certain changes will have to wait an additional three days before closing.”

Under the Truth in Lending Act and the Real Estate Settlement Procedures Act, borrowers currently receive three separate disclosure forms during real estate transactions process—two at the beginning of the lending process and one at closing.

Katie Marcus, a Coeur d’Alene-based loan officer with Spokane-based Washington Trust Bank, says that under the current process, borrowers often don’t see a breakdown of all fees until they come to the table at closing.

In a real estate transaction, closing is when agreements between buyers and sellers are finalized and money and property titles change hands.

On the front end, the Know Before You Owe rules will require lenders to provide a loan estimate to the prospective buyer within three business days after the application is submitted and at least three days before collecting supporting documents and fees.

Current separate documents called the good-faith estimate and the truth-in-lending disclosure will be combined under the new rules into the single loan estimate form, Marcus says.

On the back end, new rules will require lenders to provide a closing disclosure form prior to closing. The closing disclosure document will replace a document called the HUD-1 Settlement form that borrowers likely don’t see until closing under the current rules.

The closing disclosure form is similar to the loan estimate, but also breaks down which costs and fees are paid by the buyer, seller, or other parties, Marcus says.

One of the most significant changes under the new rules is the timing requirement. Lenders will be required to provide the new closing disclosure documents at least 72 hours prior to closing, Marcus says. Certain changes to mortgage terms made within that three-day period would delay closing at least another 72 hours.

A National Association of Home Builders bulletin on the new rules says changes that would trigger such a waiting period include an increase of more than 0.13 percent in a fixed annual interest rate or an increase of more than a 0.25 percent in a variable rate. Other changes that would extend the waiting period would be a change in the type of loan or the addition of prepayment penalties.

Fee changes that also would require a three-day delay include increases in lender and mortgage broker charges, certain charges by affiliates and third-party services, and transfer taxes, the association reports.

“The biggest change will be getting the disclosure to borrowers,” Marcus says. “That will be the challenge.”

The new rules likely will add to mortgage costs, she says, adding that mortgage lenders are hiring compliance officers to ensure they meet the new requirements.

“We haven’t figured out the costs,” she says. “They are usually built into underwriting fees or into loan interest rates.”

Ken Lewis, owner and broker at Berkshire Hathaway Home Services First Look Real Estate, in Spokane Valley, says brokers and agents will be encouraged to help homebuyers and sellers understand that the mortgage process likely will take longer under the rules.

“If they are trying to close transactions in six weeks, maybe it’s going to take seven,” he says.

Timing requirements could also affect move-in dates, he says.

For example he says, if a last-hour change in terms triggers a three-day delay during closing scheduled on a Friday, that three days likely would turn into at least a week before the borrower moves in.

“People usually move in on weekends,” he says.

Until recent weeks, the CFPB had planned to implement the rules starting Aug. 1.

Lewis says he’s glad the agency decided to postpone implementation until fall—after the peak of the home-sales season.

“The market is brisk right now. If it had taken effect Aug. 1, it would have been harder on the market,” he says. “Moving it to October will slow things a little bit, but maybe not too much.”

Joel White, executive officer at the Spokane Home Builders Association, says the association is raising awareness among builders about the coming rules.

The association recommends all closing disclosure paperwork be completed at least a week before closing to help prevent delays, White says.

“Everyone wants on-time closing,” he says. “The new owners and the contractors don’t want to see delays. Buyers are always disappointed when they can’t get into a house when they had planned.”