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How Does The New CFPB Closing Disclosure Affect Real Estate Closings?

cpff Know before you owe closing disclosure guidelines

How Does The New CFPB Closing Disclosure Affect Real Estate Closings?

How Does The New TRID Closing Disclosure Affect Maine Real estate?  The Closing Disclosure and Loan Estimate were been implemented by the CFPB as of October 3, 2015.  There has been so much talk lately, and unnecessary panic, about the new closing guidelines and associated forms.

The initiative, better known as “Know Before You Owe” is designed to improve transparency give the consumer information that will help them make a sound mortgage decision.  It’s important to give you a little background on how and why we have arrived at this place today.

If we look back to 2006-2008 there were many people who made mortgage choices which wound up hurting them more than helping.  Many sub-prime mortgages were obtained and buyers didn’t really know or pay enough attention to what they were actually getting into.  I remember buyers choosing 106% financing options (including a 6% sellers concession for closing costs), which means they didn’t have any skin in the game.

Imagine buying a home and putting absolutely nothing down and having an interest only loan for the first few years.  This sounded great to a first time buyer but when you look at the big picture, see how much more you are paying for the home, and how long it will take to pay off the loan, you’ll cringe.

Some blame the consumer and others the mortgage professional for misleading clients.  This led up to the Dodd-Frank Wall Street Reform and Consumer Protection Act which were signed into federal law by President Obama in 2010.  The law  brought significant changes to our financial regulatory environment but wasn’t the answer to some.

In order to implement some of the provisions of Dodd-frank Congress formed the CFPB.  Their primary goal is to educate the consumer every step of the way thus giving them a chance to make changes or stop the process altogether.  My question is this; shouldn’t this have been in place for the consumer from the beginning?  Why does it take a crisis in order to get proper protection and education for the consumer?

We all know that buying a home is probably the largest purchase a person will ever make, buyers should be fully educated prior to making this purchase.  As professionals it is up to us to educate, guide, and protect the best interests of the consumer not our own pocket.

Below is an article written by Jim Fleming Esq. of New England Title (jim@titlene.com – 207.874.7450 and Steven Lavallee – Branch Manager Finance of America Mortgage – Yarmouth Maine – (207.846.1444 email: slavallee@financeofamerica.com)

For all loan applications taken on or after October 3, lenders will be required to use two new disclosure forms. The Loan Estimate (“LE”) will replace the GFE (Good Faith Estimate) and the Closing Disclosure (“CD”) will replace the HUD-1. The LE must be given to a borrower within 3 business days of a loan application, and the Closing Disclosure must be given to the borrower at least 3 business days before closing.

The new disclosures are very easy to understand and are consumer friendly. In most cases the Closing Disclosure will be placed in the mail six business days prior to closing.  This means that the lenders will need to have the Closing Disclosure completed ten to fourteen days before closing.

In addition, no last minute HUD-1’s, running around to make sure all contract requirements are met, last minute scrambles for the borrower to determine how much cash the borrower needs, and no last minute races to the bank to secure closing funds.

Now, the law does require the lenders to reset a new three day Closing Disclosure period,  but, in only very limited circumstances. First, addition of a prepayment penalty (never happens).  Second, last minute change in a loan program (rarely happens).

 Finally, a change which makes the APR inaccurate by more than 1/8 of a point in a fixed rate program or a ¼ in a variable rate program. This could most often occur only if a closing gets postponed from the last day or two of the month to the first day or two of the next month, thereby causing the prepaid interest to increase significantly.

So, what can a real estate agent do to help minimize any closing delays?

First, communication, communication, and communication!

  • Communicate all changes in contract terms, such as price changes and closing date changes, to your loan officer and title company/attorney as soon as possible. Forward all executed contract addendum’s to your loan officer and title company/attorney as soon as possible.
  • Communicate to your buyer the importance of immediately providing all documentation requested by the lender and title company/attorney. Lenders must now disclose all fees, including home inspection fees. Failure to do so could result in delays and contract defaults because of missed deadlines, including a missed closing date.
  • Communicate to your buyer the importance of signing an “intent to proceed” and returning the LE to the lender as soon as possible. The lender cannot order an appraisal until it receives the intent to proceed.

Second, Timeliness and proactivity!

  • Deliver all document changes as quickly as you can
  • Interact regularly with your loan officer and borrower
  • Be proactively engaged with your title company, lender and all parties to the transaction

The CFPB will not tolerate any deviations from the new rules, so we have an opportunity to streamline the loan closing process and to provide the buyer /borrower with AN EXCEPTIONAL AND SMOOTH CLOSING EXPERIENCE.

 

 

 

 

 

 

 

 

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