If you are familiar with the closing process, September will be the last days of ‘the old ways’. Get ready for some big changes on the horizon. Big Banking has been lusting for control over the real estate closing process for a long time and Big Government has now made it so. Purported to help the consumer ‘fairly’ decide which loan or institution might ‘give them’ a better deal real really does little to do so.
Created by the Frank-Dodd Act, the consumer now has a new champion in this arena called the Consumer Financial Protection Bureau. Oh yes, as with all modern government mandates there are plenty of newly ‘lettered’ agencies, regulations and documents to wade through ‘for the protection of the consumer’.
The Transfer Act, Alternative Mortgage Transaction Parity Act, Consumer Leasing Act of 1976, Electronic Fund Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act, Home Owners Protection Act of 1998, Fair Debt Collection Practices Act, Federal Deposit Insurance Act, Gramm-Leach-Bliley Act, Home Mortgage Disclosure Act of 1975, Home Ownership and Equity Protection Act, Real Estate Settlement Procedures Act, S.A.F.E. Mortgage Licensing Act or 2008, Truth in Lending Act, Truth in Savings Act, Omnibus Appropriations Act of 2009, Interstate Land Sales Full Disclosure Act, Mortgage Reform and Anti-Predatory Lending Act are all fully or partially transferred to the CFPB. Bored?
Experience says that the average consumer has not studied these regulations and will ‘fail’ when ‘tested’ about the magical designations of Title 12, Chapter X, Regulation C, Regulation X and Regulation Z. Penalty. These really are the legal titles.
It would be too easy to continue on with the named terminology that everyone is familiar with, when ’helping’ the consumer what is needed is more magic! A “closing” will be “consummation” (sounds like soup). A “borrower” will be a “Debtor (that doesn’t sound very nice). A “Lender” will become the “Creditor”. “TIL” & “GFE” will become “LE” (what)? “TIL” & “HUD-1” will be “CD” (enough)!
The reality of all this technical jargon is a cascade unintended consequences for the retail residential real estate market. Gone will be the ability for those involved at the closing table to resolve issues (regarding money), that now can trigger a ‘new round’ of required disclosures from the lenders due to the changes from the original ‘good faith estimate’. If by default there is any effect on the mortgage process, the closing will stop until the round of disclosures (including day count for review) has passed, enabling the process to resume.
Not anything worth worrying about by itself, unless the borrower’s rate lock is going to expire… then what? Back to the mortgage drawing board! New disclosures and additional day count for review. Call the attorneys to reschedule the closing.
By way of planning, it might be a good idea to extend the time line by at minimum a few weeks to complete a typical residential transaction with lender financing allowing for any unforeseen problems that would easily be resolved today at the table.
Sellers will not be free from additional burden either. For example, many areas still have unimproved roads that are recorded at a registry of deeds having scheduled fees for maintenance or other upkeep. That alone is not a problem. What might become a problem is no one actually knows what those fees are assigned for or if anyone pays them. Lenders are going to want to know as they are bound under these new regulations to comply to the letter of the law.
No information will mean delay. New information at closing may require a rework of the loan package. If your buyer’s lender is in Omaha and your transaction is on Cape Cod, the prospects of a speedy resolve is limited.
City sellers beware when financing is involved as you too will need to provide through your agents and legal representatives information about, for instance, those “no condo fee” units, that have a common area, that cousin Billy has been talking care of, for the parking space that he uses during the day, where there is no parking, that no one knows about… in Omaha. Good luck!
Items that have typically been presented at closing such as, municipal certificates, septic system compliance certificates, pro-rated water, sewer, taxes, dues, utilities or any other imaginable items will need to be provided at minimum 14 days prior to consummation (closing) in order to have the lender be in compliance.
Thankfully there are no rule changes for cash deals. Sign the papers and all is done. Home equity lines of credit, reverse mortgages, commercial purpose loans, mobile home transactions will fall under the ‘no change’ category. “Lenders” making 5 loans or less per year (like a seller taking back paper) will also be free from these new rules.
Let’s see what happens next…