Changes are coming to the mortgage loan process this fall, and they’re expected to impact everyone involved in the business of real estate.
Set to take effect on October 1, the rule changes focus on two primary aspects of the process: reducing the number of documents required at closing from four to two; and requiring all doc-uments be submitted three days prior to closing (currently, documents can be altered or changed all the way up to the day of the closing).
The first of the new required documents, called a Loan Estimate Form, combines what is currently known as the truth-in-lending (TIL) disclosure statement with the Good Faith Estimate. The second document, the Closing Disclosure Form, merges the final TIL disclosure with the HUD-1 settlement statement. A side-by-side comparison of the existing documentation versus the new documentation can be found at www.consumerfinance.gov.
The rule change, according to Dawn Bell, a mortgage loan officer with HomeStreet Bank, should be welcome news for consumers because the new disclosures are easier to read and comprehend.
“In my opinion, the change is better for the consumer and clearly spells out the terms and costs of a real estate transaction: who pays what cost and the amount the buyer needs to bring to the transaction after earnest money and any other deposits,” she said.
Avaly Scarpelli, executive director of the Building Industry Association of Clark County, agreed. If the customer has a better understanding of what they are signing, she said, the process will go smoother.
Scarpelli specifically noted the importance of providing clear details with regard to the “interest rate of the mortgage loan, the amount of monthly pay, the listing of all closing costs: making that completely and totally clear on one form for the customer.
“Another purpose is that it will help home buyers compare mortgage loan options,” she added. “If they pursue a loan, they’ll be able to clearly compare them. For customers who are specifically applying for an adjustable rate mortgage, it will explain how the interest rate and future monthly payments will change.”
The deadline change for documentation is expected to simplify the process for customers as well.
“This is all about locking things in three days prior, giving all parties time to review everything and make sure it’s exactly what they want to be involved in when they go to close that home,” Scarpelli said. “It’s going to mean timeliness in communication between seller and buyer.”
“I think it’s a good thing,” said Dennis Gish, manager of builder services for Columbia Title. “You like to see the file numbers [and] have a few days to think about it so that it’s not a big surprise when the time comes.”
As with any regulatory change there are potential pitfalls. For instance, implementing the three-day deadline means that the sale of a home will have to be delayed if the documentation is not provided in that timeframe.
“There will need to be timely and exact communication between seller and buyer for there to be no delays in the process,” Scarpelli stressed.
On the industry side, Bell said that everyone involved in real estate needs to be educated.
“Unless the transaction is cash, where there is no time needed for processing a real estate loan, then anyone involved in that transaction will be impacted,” she said. “Lenders, realtors and real estate attorneys in particular should understand the new change and what the effects are on their business.”
Pat Jeffries, founder of Ridgefield-based JB Homes, has been on the homebuilding side of the real estate industry for four decades. He surmised that the upcoming changes (specifically the new three-day deadline) will be a bit of an irritant at first, but eventually the bugs will get worked out.
“Initially, I think it will create some hassles because you have to provide the final price ahead of time before you really know everything and if it changes you lose a few more days,” he said. “I don’t want to be saying the sky is falling; it’s not. It’s just another irritation.”
The other item causing discussion within the industry is the fact that the rule changes were originally scheduled to go into effect on August 1, but that date has since been moved back to October 1. Bell indicated that the delay was due to a failure by the Consumer Financial Protection Bureau (CFPB) to notify Congress by the correct due date.
“Given that this (missing the due date) forced a minimum two week delay, CFPB decided to expand the delay to October 1, to allow lenders more time and to move the implementation outside of the back-to-school home buying season,” she said.
Back on the homebuilding front, Jeffries explained that rule changes of this nature are nothing new, and his company will be as ready as they can be.
“Change is the nature of the world – in our business in particular,” he said. “We deal with change every day. If you can’t deal with it, you probably ought to retire.”
For more information about the changing mortgage loan process, visit www.consumerfinance.gov/knowbeforeyouowe.