3/30/2015

New Transaction Closing Rules -- Starting August 1 by CFPB

Be Careful Crossing the Road of Financial Protection
The Consumer Financial Protection  Bureau was brought into being by the Dodd-Frank legislation, and the CFPB has teeth which are being inserted into the lives of lenders, and therefore the lives of home buyers and sellers.

The "Know Before You Owe" rule, effective August 1, 2015, is bringing a new closing document (6 pages) and is doing away with our HUD-1 statement (3 pages) in the form of a non-uniform closing package which does away with the uniform coded costs which have been in existence for . . . decades.  By non-uniform is meant that lenders can call their categories what they so choose, and therefore may be different from one bank to another all across the country.  On the other hand, "the new forms resolve the problem of redundant and overlapping information presented in the standard Real Estate Settlement Procedures Act (RESPA) and Truth In Lending Act (TILA) disclosures that lenders are required to send to borrowers following submission of a mortgage application and just prior to the closing." See, for a very indepth industry discussion, this article by Patrick Barnard.

One of the net results is that there's more pages to get to a closing, and the closing will probably end up being extended well beyond the initial escrow period IF there are credits back which must be given a 3-day period to sign on and disclose to the lender.  So if, for example,  the seller agrees to credit the buyer $500 for some repairs rather than perform the repairs, that will require a written documented disclosure to the lender, the total of such amounts may not exceed the lender's cap.  Such a $500 agreement between buyer and seller will require a new good faith estimate from the lender, which in turn adds to costs by some lenders.  Another fact of life is the cost involved for escrow companies and lenders to retool their technology because they will be required to be in sync on this process.

Since this is being  implemented on a national basis, it will affect procedures and laws in all states.  The bottom line for buyers and sellers is that a 30-day escrow may turn into a 45-day escrow, which impacts people's moving plans for making the smallest of changes.

More will be said here on this issue, but the bottom line for residential buyers and sellers is to grasp the transactional costs and fees, including termite inspection (very costly sometimes) and what they agree to agree on with each other in the beginning.  I can see a world of even more advance planning on both sides.

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