The federal government has a question for consumers who have bought or refinanced homes, a question that’s certain to generate more than an earful or replies: Were there any problems when you went to close the deal?
Any last-minute glitches or surprises that delayed the settlement, required unexpected negotiations or, worst of all, blew up the sale or refi? Did you get your settlement sheet in advance so that you could review the documents intelligently? Were there any errors or discrepancies that popped up — charges that were considerably higher than you had expected, loan-related fees or an interest rate that differed from what you thought you had signed up for? Was the whole process pleasant? Was it “empowering”?
Wow. Talk about stirring up hornets. The Consumer Financial Protection Bureau, which has broad regulatory powers in the real estate settlement arena, wants to know whether there are common problems that need to be fixed. If so, it may make what it euphemistically calls “interventions” in order to right what seems to be wrong.
The bureau also wants to hear from realty professionals, lenders, title insurance and escrow agents, lawyers and others who play roles in closings on homes — the people who produce, bless and witness the signings of mounds and pounds of paper associated with the settling of America’s home transactions.
From industry accounts, the vast majority of closings are successful. The National Association of Realtors estimates that roughly 10 to 12 percent of all pending sales don’t close, for various reasons. But conversations with agents suggest that a much higher percentage of settlements experience problems that arise just before or during the event, snags that either delay or complicate the process.
Though eleventh-hour delays can occur because of issues related to title insurance and other factors, a disproportionate number appear to be related to the mortgage. Late in the game, the lender might inform the borrower: Sorry, but we’ve encountered some underwriting red flags in your application that you’ll need to resolve before we can proceed. Or oops, we didn’t get all the loan documents to the closing agent in time. Or worst of all, we’ve changed our mind. We simply cannot do this loan and we sincerely regret that we’re telling you this on the day before your scheduled closing.
Gary Kassan, an agent with Pinnacle Estate Properties in Valencia, Calif., says that he routinely gets buyers preapproved by lenders but that in at least 20 percent of purchases, problems that threaten to delay or disrupt closings pop up after the preapproval. In early January, Kassan was waiting for a lender to agree to close on a deal that had originally been scheduled for late December. The problem: underwriters’ questions about the borrower’s income that arose late in the process.
“I want to ask all these [loan officers] ‘Why didn’t you bring this up earlier, before you gave [my client] a preapproval letter?’ ”
Cindy Westfall, an agent with Premiere Property Group in the Portland, Ore., area, has had two recent sales knocked off track by underwriting issues just before the closing; one of them caused the entire sale to blow up, forcing her buyers to start their home search all over again. “My clients were very stressed” by the entire experience, she said in an interview.
Rhonda Masotta, an agent with Bright Realty in Sarasota, Fla., almost found herself in the same situation: Last year, she was sitting at a table for her buyer’s closing on a $1.25 million home. The only thing missing was one essential item: confirmation that the bank committed to do the loan had wired the money needed to complete the transaction.
“We all waited for hours,” but there was no word from the bank, Masotta said. The closing was rescheduled for the following day, but then came the bad news: The bank had decided to back out of the deal. That’s usually a death sentence on a home sale, but Masotta and her colleagues on both sides of the transaction opted for an emergency rescue attempt and found a bank willing to underwrite and fund the loan on an expedited basis later the same day.
That’s not the way closings are supposed to work, but stuff happens.
If you want to share your experiences with the Consumer Financial Protection Bureau, e-mail your account by Feb. 7. Detailed instructions for submitting comments — and postings of comments made to date — are online in the Jan. 3 Federal Register, at www.federalregister.
Ken Harney’s e-mail address is firstname.lastname@example.org.