You may have heard there are new changes coming to the mortgage industry, which are going to impact the closing process of buying a home.
While not everyone is happy about the changes, I think these new regulations make a lot of sense and really are going to help the consumer.
The Consumer Financial Protection Bureau has created two new disclosures, which come from the Know Before You Owe Initiative. The objective is to streamline the previous disclosures in an effort to help make the lending and closing documents easier to read and understand for the consumer.
THE TWO NEW DISCLOSURES
Loan Estimated—Replaces The Good Faith Estimate and The Initial Truth in Lending Disclosure.
The previous two forms will be combined into one Loan Estimate designed to help the borrower understand key factors. In addition, it contains estimates of credit costs and transaction terms, as well as fees.
The old Good Faith Estimate showed the fees associated with the loan and estimated closing costs, but it was very unclear and difficult to read.
The new Loan Estimate, which is three pages long, is printed in a large font, making it even easier to read. The material really spells out exactly what the borrower needs to know about the type of loan they are applying for. It shows the term, interest rate, projected payments, closing costs, loan costs and service costs. It also clearly shows which services the borrower can shop for and which ones are set fees.
One of the most important aspects of this new Loan Estimate is the fact all lenders will now have to be upfront with their fees, so the borrower doesn’t have any last minute surprises. Too often, we would see where a buyer used one particular lender over another, as the fees quoted were far less, saving hundreds of dollars. Then, when the buyer went to sign the closing documents, there would be new fees added or existing ones increased. Therefore, the buyer did not get the savings initially quoted.
This was a ploy by some lenders to show lower fees upfront just to gain the buyer’s business, knowing full well these fees would increase. The new Loan Estimate will stop that from happening and makes all lenders disclose the fees up front. When the borrower does shop around, he is comparing apples to apples.
The Closing Disclosure—Replaces the HUD-1
The old HUD-1 was pretty confusing and hard to understand. Many times, the first time the borrower actually saw this document, showing the final costs and fees, was at signing, right before closing.
The new Closing Disclosure, at five pages long, clearly lays out the actual terms and costs of the loan and the closing costs in an easy-to-read format. This disclosure must be sent to the borrower no later than three business days prior to closing. The dates are extremely important, and everyone has to be on top of his game, making sure all the information is correct and the lender has everything needed in order to send this disclosure out on time. If it is sent one day later, the closing will have to be pushed back a day. So, communication between all parties is extremely important.
WHEN WILL THESE CHANGES BE IN EFFECT?
The changes were originally scheduled to be effective on Aug. 1. Initially, it was postponed until Oct. 1, then to Oct. 3. That date may have changed since this article was written, however. So, make sure to check with your lender.
HOW THESE CHANGES MAY AFFECT THE CLOSING PROCESS
With the added responsibility and timelines being imposed on the lender, we are expecting the current 30 days to close to be extended to 45 days, certainly for the first few months, while the lenders implement these changes. Some may take less, and others may take longer, but I would expect to see contracts written after Oct. 3 to have a 45-day close.
These changes not only impact the lenders, but the Realtors and title companies, as well. Choosing the right lender and Realtor with whom to work, who are current on the new regulations and how to implement them, is more important than ever to ensure a smooth closing.
You can read the full article, which provides a lot more information, and see copies of the new disclosures on my website under the blog section www.Homes2SellAZ.com. Please don’t hesitate to contact me directly for more details, and to learn how these new changes may impact you, or to request referrals to preferred lenders.
Lorraine Ryall is a Multi-Million Dollar producer and a recipient of the Coldwell Banker International President’s Circle Award. For more information, call (602) 571-6799, or visit her website at www.Homes2SellAZ.com.