Come Oct. 3, the Consumer Financial Protection Bureau (CFPB) is mandating new forms and regulations for any party involved in a mortgage settlement. This includes buyers, sellers, agents, lenders and title companies.
The most noticeable of these changes involves the revision of several forms, including the HUD-1 settlement statement, to create two new streamlined forms — the Closing Disclosure and Loan Estimate. These will lay out loan financials and closing costs in two documents instead of the multiple, redundant forms that were previously used.
The other major change is what’s being referred to as the “three-day rule.” Previously, changes to the loan or closing financials could be made in real time, up to and including at the settlement table. Now, certain changes will trigger a three-day review period that must be observed before a closing can occur.
The CFPB made these changes to better protect home buyers and inform them of consequences of changes to lending or closing costs. This is a good thing, as an informed buyer is more likely to make better decisions, which will lead to a healthier overall market.
But until everyone becomes acquainted with the new regulations, there is the possibility for confusion and delay. We asked several local brokers what they thought would be the consequences of the new CFPB rules:
• Louis M. Pope, broker and owner of Century 21 Trademark Realty:
In the first several months, lenders and title companies will follow these new rules very strictly. Over time, everyone will develop methods to solve last-minute problems. One issue that could arise is if there are multiple transactions. The additional wait could jeopardize a series of settlements. This would cause multiple buyers and sellers significant money due to rescheduling movers and plans. Real estate agents can help buyers and sellers avoid this problem by discussing the new settlement procedures at the time of the listing.
• David DeSantis, partner and managing broker, TTR Sotheby’s International Realty:
Not all lenders may be ready for the changes come Oct. 3. So, making a good lender selection is more important than ever. Last-minute changes in appraisals would trigger the mandatory three-day review period. This could cause problems if the buyers have to move out of their current home ASAP or if they are making the purchase as part of a 1031 Exchange.
• Kevin Turner, broker, Home Towne Real Estate:
The required timelines are well-intentioned attempts to better protect and prepare buyers with consistent time frames and processes for receiving information about their loans. Prior to these changes, items like changes to the structure of the buyer’s loan or what they were paying could be simply handled with a variety of tools. Now all parties will have to ensure these types of things are monitored and addressed early enough so not to trigger the automatic review period.
• Taylor Bowen, broker/owner, Berkshire Hathaway Bowen Realty:
Buyers and sellers who seek a quick closing may find meeting deadlines a challenge. A last-minute change that could cause delays is when municipalities take a while to do final water bill readings. In these instances, title companies will generally put in a higher flat fee and then adjust as needed when the actual reading is recorded. This could result in new forms having to be issued and the parties waiting three days to close. Real estate agents will be called on to ensure that their clients are educated in these changes and make proper arrangements to account for possible delays.
• Rick Boswell, broker and owner, Century 21 Sterling Realty:
The purpose of these changes is to protect consumers and help them make more informed and intelligent decisions. As a result, conveniences like early move-in or having a loading van ready to go, have probably gone by the wayside. The new regulations will also localize housing transactions to a greater extent. Agents need to use local lenders to keep the process running smoothly. You can’t rely on people further away if you need immediate signatures.
Catch up with some of David Charron’s previous columns: