September 27, 2015
THE ALL NEW LENDING RULES
October 3, 2015 ushers in new laws and rules to protect homebuyers from being duped or acting without being informed. There are new forms replacing old forms and new timelines designed to slow down the purchase process. The rules apply only to transactions beginning October 3 or later.
We all know that fraud was rampant in the industry causing a global financial disaster and compromised the stability of households one at a time. The new TILA-RESPA Integrated Disclosure rule, or TRID, is one of the most talked about subjects in the mortgage and real estate industries right now and it is 1,880 pages long.
The Consumer Financial Protection Bureau (CFPB) is a federal agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives.
While we typically don’t view new rules as our friends, these are designed to help lenders and Realtors make and keep friends for life. The marketing of this new program also urges borrowers to shop for their Realtor® and shop for their lender. It is also a good idea for consumers to check the California Bureau of Real Estate website for license information. It is http://www.dre.ca.gov.
There are two new forms with new time constraints making a 45-day escrow more likely than 30 days. One is the Loan Estimate which replaces the old Good Faith Estimate (GFE) and Truth in Lending Form (TIL). The other is the Closing Disclosure form which replaces the HUD-1 closing statement that buyers did not see until the time of closing. The lender is required to provide both forms.
After the lender has provided loan information as to rate and terms, the buyer must provide a “Notice of Intention to Proceed”. They submit their formal application and that triggers the first new form, the Loan Estimate. It must be received by the borrower within three days of the application and prohibits their transaction from closing in less than 7 days.
The new Closing Disclosure is five pages long with each page devoted to a specific element of the loan, such as the loan terms and a breakdown of closing costs and contact information for the Realtor®, lender and escrow company. There is particular attention to costs you can “shop” for and those you can’t. Another new rule is zero tolerance for any variations in the estimated costs where a 10% variance was previously allowed.
One of the more critical changes is the waiting period required before closing and from when the Closing Disclosure is made available. If the lender can demonstrate the buyer has received the Closing Disclosure, only three days of waiting is required. If the Closing Disclosure is sent electronically or mailed, a delay of an additional three days is required.
The only possible opportunity for a consumer to waive this requirement is to demonstrate a true emergency–such as an eminent foreclosure of their property.
Further, if there are revisions in any of the costs or changes in the interest rate (1.25 for fixed rate loans or .25 for adjustable rate loans) or the loan type, it will trigger another three-day waiting period. This is to stop the old “bait and switch” act which crippled previous homebuyers.
Because business days are being re-defined within the TRID rules, it could mean even more days’ delay. For the Loan Estimate, business days are those days which the lender is open or available for all services to the public which would generally not include Saturday, Sunday or public holidays. For the Closing Disclosure, three business days are any days but Sundays and holidays.
There has been much chatter in the industry for a while about the consequences of these new rules. For those of us who have seen changes implemented over the years and are now a part of our standard business practices, the TRID rules are welcome. Being informed is being armed.
Here is a hint, however, to seller and buyers. if you are encouraged by a real estate agent to write a 30-day closing into a contract where financing is a condition of purchase, please beware. The agent either doesn’t know about the new rules or thinks they may not apply to him or her. They do.
There is a new 25-page booklet called “Your Home Loan Toolkit”. Go to the website http://www.cfpb.gov and click on the line “Learn more about our ‘Know Before You Owe’ mortgage initiative. It is available from the lender or your Realtor®.
Kay Wilson-Bolton has been in real estate in Ventura County Since 1976.
Century 21 Hometown Realty