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New federal rule on home closings delayed

The Consumer Financial Protection Bureau has decided to delay introduction of new forms for home closings. (Consumer Financial Protection Bureau)

The Consumer Financial Protection Bureau (CFPB) has delayed from August to October its plan to introduce sweeping changes to the mountain of paperwork consumers sign at closing when they purchase a home.

The CFPB’s “Know Before You Owe” rule is aimed at replacing key settlement documents with more user friendly versions giving consumers a better idea of what they’re signing. The rule also will require lenders to furnish the documents to borrowers three days before the closing to give them ample time to review them.

[Closing time is about to get a big makeover]

But while applauded by consumer groups, the American Bankers Association expressed concern that its members wouldn’t have the software in place by Aug. 1 to accommodate the changes. Lenders, real estate agents and title company representatives asserted that the changes could cause some delays in settlements in the early months after the transition to the new system.

“We made this decision to correct an administrative error that we just discovered in meeting the requirements under federal law, which would have delayed the effective date of the rule by two weeks,” CFPB Director Richard Cordray said in a statement. “We further believe that the additional time included in the proposed effective date would better accommodate the interests of the many consumers and providers whose families will be busy with the transition to the new school year at that time.”

[6 tips to ensure a smooth closing]

In a statement, Frank Keating, president and CEO of the American Bankers Association, said he supports the delay.

“This extension will help protect consumers from disruptions during a traditionally busy period for home purchases,” Keating said. “It will also help to assure new loan origination systems and compliance software under development by lenders and the vendors on whom they rely will be adequately installed and debugged, and staff training completed, before the effective date.”

For more information about the Know Before You Owe rule , go to www.consumerfinance.gov/knowbeforeyouowe.

Michele Lerner is a freelance writer. To pass on a tip or news item, contact us at realestate@washpost.com and put “Town Square” in the subject line.

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