Sliding House Image
Toledo Skyline Image

It’s here! The new CFPB mortgage rules are now in effect!

Mike K 2

By:  Mike Kajfasz, VP Toledo Area Manager, Chicago Title

As I noted previously, the Consumer Financial Protection Bureau is the new mortgage process ‘sheriff in town’. It seems only appropriate to use the Clint Eastwood movie title “The Good, The Bad and The Ugly” to go over the details of the new rules. I’m sure you will decide what is what as we move forward through the new process.

Q. As a realtor, what should I do today to be ready and have my clients ready for this?
A. First, know when the buyer on your transaction has applied for their mortgage. If they applied before 10/3, you will be doing the closing process ‘business as usual’. This means you will likely not have a closing under the new forms and rules until November at the earliest. Second, get very familiar with the new Loan Estimate (LE) form and the new Closing Disclosure (CD) form ahead of time. The new forms are actually easier to review and compare with your client. Third, communicate with your lenders and title companies as to the details of the new delivery and review periods of the LE and the CD forms. The CD form delivery/review rules will have a big impact on when the transaction can close based on each lender (see below).

Q. Are lenders and title companies ready to roll with the new changes?
A. Hopefully! Not the answer I know you want to hear but the sheer magnitude of the changes necessary with both lender and title company software will likely cause some issues that will have to be addressed once the process gets going. There may be some who have not had time to ‘test’ this new software enough to be prepared. Good communication between you, your client and the lender/title company from the start is essential!

Q. What are the biggest changes with this new process?
A. Under the new rules, the LENDER will be held accountable for the complete process from beginning to end and can be fined or penalized for violations of the rules (up to $1 million for blatant violations of the rules!). The biggest change you will see is that the lender will be producing the Closing Disclosure for the buyer, not the title company. This is because the CD must be in the hands of the borrower 3 business days prior to closing for their review and is the responsibility of the lenders. In addition, many lenders may utilize a 3 day delivery period allowed under the new rules. The 3 day delivery period applies whenever the CD is delivered any way other than ‘hand delivery’ and is in addition to the 3 day review period. This means an extra 3-6 days can be added to the mortgage process at the end. Title agents will still be preparing the Seller side of the CD and conducting the closings.

Q. How will SELLERS be impacted by these new rules?
A. Based on the new rules regarding delivery and review of the Closing Disclosure by the borrower, the seller could be impacted in a number of ways. The coordination and closing of back-to-back transactions may be very difficult, if not impossible, in many cases. If one lender hand delivers the CD and the other lender mails it, there is a 3 day wait to close on one transaction and a 6 day wait to close on the other. As you can see, the timing of loan approval and CD delivery will be very difficult to coordinate! How this affects the ‘possession date’ could also be a big factor to be dealt with. This may be why NAR has suggested adding 10-15 days to your typical closing times on the contract to allow some cushion.

In summary, the new forms are more consumer-friendly for ease of review and the borrower does get the CD at least 3 days prior to signing closing documents (the good). It may get very difficult if not impossible to do back-to-back closings or coordinate possession dates (the bad). Some lenders may well struggle early on with the new process which could result in lengthy delays (the ugly). I think once we all get through the next 3-6 months, where we will be using old and new forms, things will get moving along smoothly and consistently for all. For now, communicate regularly with ALL parties throughout the transaction to stay informed and, more importantly, to keep your clients informed.