The main purpose behind the new loan estimate disclosure that lenders are now required to use under the Consumer Financial Protection Bureau’s (CFPB) new TILA-RESPA Integrated Disclosure rule is to provide consumers with a detailed yet easy-to-understand breakdown of the terms of the loan being offered and to allow consumers to more easily compare loans.
The problem, however, is that despite the fact that the new disclosures make loan terms easier to understand, comparing different loans is still a fairly complex task for most people. A survey conducted by the CFPB finds that roughly three quarters of potential home buyers only consider one lender – and often only one loan product – when shopping for a home.
As such, software firm eLEND Solutions, a division of American Financial Resources Inc., has come out with a new mobile tool that lets consumers easily compare the terms of the loans being offered by allowing them to compare the data in the loan estimates they have received against a larger database of loan estimate data.
The company claims that its mobile loan estimate comparison tool, “Rate My Rate,” is the first in the industry to assist consumers in evaluating loan estimates. The new tool offers borrowers the ability to compare loan estimates from other lenders with eLEND offerings to see if they can save money on a mortgage best suited for their needs.
The CFPB recommends that borrowers get loan estimates from three or more lenders before making a final choice. Part of the problem, however, is that is hard for some consumers to make comparisons based on the information they have.
“The CFPB redeveloped this whole process and these disclosures to get consumers to compare their estimates with other lenders,” says Robert Pieklo, chief strategy officer and executive vice president of eLEND, in a release. “However, consumers still aren’t making this a priority and many don’t undergo this process at all.”
“We developed Rate My Rate to highlight the importance of these government-mandated processes and provide a simple, easy-to-use tool that empowers consumers to make smart decisions regarding their home financing and ensure they are getting the best possible deal,” Pieklo adds.
The tool works by reading the information contained in a prospective borrower’s current loan estimates and feeding it through the company’s proprietary eLEND pricing engine. The data is compared across five major categories: loan costs over five years, principal paid in five years, annual percentage rate, total interest percentage and total loan costs.
By running the calculations in automated fashion, the tool helps reduce the burden on applicants. The applicants benefit because the calculations can help them make more accurate comparisons – and, thus, arrive at the best decision.
According to a CFPB study, about 77% of all borrowers applied to only one lender or mortgage broker in 2013. In response, the CFPB created these new disclosure procedures to encourage comparison shopping. Yet, many consumers are still not taking advantage of the new disclosures.
“We make it a priority to ensure consumers are taking action to get a second opinion and don’t take any one estimate at face value,” Pieklo says. “You wouldn’t take a serious diagnosis from a doctor, or invest in the market, without getting a second opinion. Why would you risk getting a mortgage without shopping around?”