Financed purchases after August 1, 2015 could be more difficult. Here's why.
The Frank-Dodd Wall Street Reform and Consumer Protection Act, created in 2010, reregulated the mortgage industry in response to the financial meltdown of 2007-2008. These regulations apply to closed-end consumer mortgage loans.
Before getting into the details, you should familiarize yourself with these changes in terminology:
- Lender will be known as "Creditor" (not a broker)
- Borrower will be known as "Consumer"
- Tolerance will be known as "Variation"
- Closing/Settlement will be known as "Consummation"
The forms will also be changing:
- Truth In Lending/Good Faith Estimate will become a 3-page "Loan Estimate" form.
It must be provided to the "consumer" within 3 days of application by the lender or loan broker and will include a summary of loan terms, estimate of costs, and a display of estimated cash to close in an effort to promote comparison shopping.
- HUD-1A/Final Truth In Lending will become the "Closing Disclosure" - this is the one that will cause the most problems.
The 5-page closing disclosure will be provided to the "consumer" by the lender (or if the lender prefers, by the settlement agent) and it must be received 3 days prior to "consummation." It contains the loan terms, final costs, and the comparison to the Loan Estimate.
The problem with these changes? Timing!
Each of these forms must be delivered or placed in the mail within three days (within 3 days of application for the Loan Estimate, and at least 3 days before "consummation" for the Closing Disclosure).
If these forms are mailed, they are considered to be received on the third business day after depositing them in the mail. If the documents are hand delivered, there must be a signed receipt showing the date.
Let's envision a scenario where a Closing Disclosure is deposited in the mail on Monday. The document is considered to be received on the third business day, Thursday. Because of the requirement for the consumer to have the document at least 3 days prior to consummation, the closing could not happen before the next Monday. And if there are changes to any of the three following items, a new 3-day waiting period gets triggered:
- change in the APR of more than the tolerance of 1/8 of 1%
- change to the loan product
- the addition of a pre-payment penalty
If there are any other changes, the consumer must be able to get the Closing Disclosure one business day before consummation.
There are other issues with CFPB that will create problems, more so for the lenders and the title companies: their systems and their software will need to be upgraded. Plus, they will be running two types of borrowers until all consumers who applied for loans prior to August 1, 2015 have processed out and closed their loans.
The information above was shared by David Hays, Vice President and Underwriting Counsel at First National Title Insurance Company and Capital Title at the Texas Lone Star (Dallas) Chapter of the Council of Residential Specialists, February 2015 meeting. David thinks there will also be an additional Texas Disclosure, due to items that are not covered in the national Closing Disclosure.
For more information, check out the CFPB website.
CFPB: just one more reason why CASH IS KING in the world of real estate.