Saturday, April 11, 2015

The End of the World is Coming on August 1st

No, it’s not but the Closing process is going to dramatically change and we still don’t know if it will be for the better. We don’t know what we don’t know, and we probably won’t know until we work with it for a while.  But why go through all of these changes?  The hope is that by making these changes we can avoid the conditions that led to what we painfully remember as the Great Recession.

I was speaking with the Mortgage Sales Manager for Santander Bank and she listed what she says are the stated goals of the ‘New Rule’, also being called the TILA-RESPA Integrated Disclosure (TRID) rule, which is supposed to:

1) Make it easier to use mortgage disclosure forms.
2) Improve Customer understanding – “Know Before You Owe”.
3) Aid in comparison shopping.
4) Prevent surprises at the Closing table.

The bottom line is increased consumer protection.

We’ve all heard of the DoddFrank Wall Street Reform and Consumer Protection Act which requires combining the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) disclosures together. 

What has been termed the “Rush Closing” will be long gone.  No longer will you receive a Good Faith Estimate (GFE) or a Truth in Lending disclosure. Those two forms have been combined into one Loan Estimate (LE) form.  Here is one of the problems lenders will be faced with: although this is called an “estimate”, lenders will be accountable for the exact charges outlined on the LE and they must be within 10% on many others, or lenders will incur huge fines.

Most of us have seen a HUD-1 Settlement Statement that discloses where the money goes and who gets what in a purchase and sale transaction.  The HUD is prepared by the closing attorney and the buyer gets to review it one day before they close on their new home.  The HUD is going to be replaced by the Closing Disclosure (CD). Although the CD will be similar to the LE, the most important and challenging change will be that the CD must be presented to the buyer a full three days before the closing, and if there are changes during that three day period, you guessed it – the closing could be delayed an additional three days or more.  Attorneys will also be required to provide costs much earlier in the process than before. 

The new Rules will place the burden on all partners at the Closing table – buyers, sellers, real estate licensees, bankers and attorneys.  As you can imagine, any delay in the closing could be very costly to all parties. Imagine what it could mean if during a delay the buyer’s loan rate lock expires?  Or a moving company has to wait to deliver furniture to the buyer’s new home?  Or the seller’s payoff will no longer be any good because it has expired. 
In the short run, what does this all mean to you as a potential buyer? It means, if you are considering making a purchase in 2015 and you will require a mortgage, make your purchase decision now and apply for a mortgage before August 1 or be prepared for the process to take a lot longer (~15+ days).  Rest assured there will be bumps in the road while everyone involved in the process goes through OJT while sorting out the bugs in the new “Know before You Owe” package.