Times — and forms — are a’changing in the real estate world. In the wake of the real estate bust, federal regulations to simplify, streamline and clarify the home-buying process brought about new paperwork as well as general fears that the expected red tape would push back closings.
The Know Before You Owe initiative began as an answer to home buyers signing loans without complete understanding of the terms and to provide an easier way to comparison shop for loans. To simplify the process, Consumer Financial Protection Bureau enacted the TILA-RESPA Integrated Disclosure Rule, and it became effective Oct. 1.
And as the industry braced for change, there was an outcry about the possible outcomes. Would the new mandated timeline for documents slow down the process?
The National Association of Realtors thought so.
Lenders are now required to provide a Loan Estimate and Closing Disclosure as part of the mortgage loan process. Those two documents replace four previous ones: the Good Faith Estimate and the first and final Truth-in-Lending disclosures and the HUD-1 Settlement Statement.
“We expected some delays as the industry had to adapt to the most significant changes in forms and processes since the introduction of the HUD over 40 years ago,” said Dave Cheval, division president of Stewart Title Co. in Las Vegas.
The new Loan Estimate, which must be provided within three days of the loan application, outlines key features of the loan, costs and risk. The Closing Disclosure must be provided at least three days before the closing of the loan and outline all the costs of the process. Both forms outline interest rate, monthly payments and costs to close the loan.
The Closing Disclosure includes the closing costs; prepaid taxes and insurance; mortgage terms, payments and fees; explains which costs are being paid by buyer and seller; and fees to each real estate company.
The new documents provide two key benefits for buyers: being able to compare loans and shop for the best deal at the beginning of a transaction, and comparing final costs to original estimates before closing.
“Buyers are reviewing completely different forms than before. And, the law now states that all fees must be accurate at the time of closing, so buyers can expect a better experience in knowing what they will owe and need to bring to the closing table,” Cheval said.
There are three ways the Closing Disclosure can slow down the final steps of a home purchase. A buyer is entitled to an additional three days to review if the interest rate rises significantly (more than one-eighth of a percent for fixed-rate loans or one-quarter of a percent for adjustable loans), if a prepayment penalty is added or if a basic loan product changes, such as moving from a fixed-rate to an adjustable-rate.
Typos, tweaks to payments and most issues noted during walk-through do not require an additional three-day waiting period, according to the CFPB.
The National Association of Realtors expressed concern about the three-day period between closing disclosure and the date of closing and that this could cause some delays.
“While it may be true that some transactions are taking longer, closings are not frequently having to be rescheduled due to the three business day period between the issuance of the Final CD and the date of consummation,” Cheval said.
Before the law took effect, the National Association of Realtors advised its members to add 15 days to contracts in anticipation of delays.
But, two months into the process, NAR President Chris Polychron said at the 2015 Realtors Conference & Expo that the process was going fairly smooth.
“We are pleased that closing delays and other harmful effects resulting from the new rules have been reportedly few in number so far. Nonetheless, as the new rules continue to take hold, we anticipate there could be bumps in the road,” he said.