This fall, some interesting new real estate-related regulations go into effect. The Consumer Financial Protection Bureau (CFPB) begins requiring banks to provide consumers with a longer window in which to review loan documentation. The new rule, potentially in effect October 3, 2015, can push closing by as many as six days—to more than a week—longer than usual.
Buyers needing to close quickly may need to begin negotiations sooner in order to meet a move-in deadline. Conversely, the changes could give an advantage to all-cash buyers overt those needing conventional financing, since sellers looking to close quickly may choose a faster close over a higher sales price.
Sarah C. Maloney, a Senior Loan Officer at Finance of America Mortgage LLC, was kind enough to give me a breakdown of the new ruling:
The October changes will require that loan disclosure documents contain a combination of both the Real Estate Settlement Procedures Act (RESPA) and the Federal Truth in Lending Act (TILA) in a document known as the TILA-RESPA Integrated Disclosure (TRID). The ruling, known as “Know Before You Owe” must accompany the Loan Estimate and include all charges, fees and line items at least three (business) days before closing. In the past, this information was given to consumers on the day of closing on the HUD-1 form (which no longer will be necessary).
The purpose of the changes is to mitigate the potential for surprises at the closing table. This change offers an advantage to buyers since any increase of more than one-eighth of a percent during the three-day window—or other changes such as pre-payment penalties, additional fees or other items that increase the consumer’s financial responsibility—requires entirely new documentation and another three-day window. Note that a decrease in interest or fees will not cause such a delay.
According to the CFPB, the new forms are easier to understand and use. The new form lists the total loan amount, interest rate, monthly principal and interest and projected payments on the first page of the form. Closing costs and cash required to close appear at the bottom of the easy to read page.
The primary advantage for home-buyers is that the three-day window allows them to walk away from a deal without penalty in certain circumstances and allows them to more quickly understand the terms of their mortgage. They get “educated” in advance.
A disadvantage for those needing to close quickly is that bankers, mortgage lenders, escrow officers and other real estate professionals will need to be familiar with the new documentation and set up computer software and other systems to prepare it. Compliance will be mandatory. These changes are significant and will take time to implement and roll out. Finally, last minute changes to a loan (even when they could potentially benefit the consumer) will be a thing of the past.
If you have questions about financing, re-financing or the new forms and how to understand them, please feel free to contact Sarah at smaloney@financeofamerica.com or (973) 715-6446.
Allison Ziefert is Maplewood, NJ based realtor and individual real estate agent at Keller Williams Mid-Town Direct in Maplewood, NJ. Allison specializes Maplewood, NJ real estate and homes and South Orange, NJ real estate and homes as well as Millburn/Short Hills, NJ, West Orange, NJ and surrounding towns. Email Allison@bestnjtowns.com or visit azhomesnj.com.
