As you may have already heard, some big new changes to the mortgage loan closing process took effect this month, hopefully simplifying some of the existing rules. Let’s take a look at what these changes are, and how they may affect things.
The new changes (which went into place on October 3rd), are a merging of two existing sets of rules governing mortgages - the Truth in Lending Act (TILA), and the Real Estate Settlement Procedures Act (RESPA). These two sets of rules had a good deal of overlap, and caused a lot of complaints from both lenders and consumers. The new laws attempt to combine the two into one integrated set of rules that should provide consumers with more information about their proposed loan, and have that information in their hands sooner.
What are the main changes that you should know?
First, the forms are changing. The former HUD-1 Settlement Statement, Good Faith Estimate, and Truth-in-Lending Disclosure, are all now replaced by two simpler forms: a Loan Estimate, and a Closing Disclosure.
Second, and perhaps most importantly, lenders will now be required to provide borrowers the Loan Estimate three business days after they apply for the loan. This form will show the the loan amount and interest rate, what the borrower’s monthly payment will be, estimated taxes and insurance, and how much cash is needed to close. These figures are now required to be much more accurate than before.
Also, the pieces of information borrowers provide to lenders will now be the same across the board. Whereas before, one lender might ask for seven pieces of borrower information, and another five, now all lenders will ask for the same six pieces, hopefully leveling the playing field and helping to ensure that all lenders are delivering the pertinent information about the loan within that 3 day Loan Estimate timeframe.
How will this affect the closing process? It remains to be seen, but the expectation is that closing times might be slightly longer at first, as the industry adjusts. Some mortgage experts are recommending that borrowers lock in their rates for 45 or 60 days instead of 30, in case of any delay. Last minute changes to the sale may be more difficult. The former settlement form could be revised and delivered up to the day of settlement, but because the new Loan Estimate must be in the buyers’ hands three days prior to closing, agents may opt to perform final walk-throughs or write up any changes sooner. If the new deadline is not met, borrowers will receive a re-issuance of the closing disclosure, and then wait another three days. So it’s going to be important for agents to stay on top of things, and for all parties to work together to keep the process moving quickly and smoothly.
All of these changes are coming at the same time as Fannie Mae also announced that it would now allow lenders to use employment income information for borrowers from an Equifax database, rather than having to collect physical copies of pay stubs and tax data. Fannie also said that in 2016 it will ease the lender process for granting loans to borrowers who currently don't have any credit score, and that it will mandate lenders to start collecting “trended” credit score data that shows a more accurate, longer-term credit history, which could be good for borrowers who have been continually paying off credit card balances each month over time.
Sound like a lot to take in? That’s where your experienced REALTOR comes in. We’re here to help guide you through the changes, and make sure that your transaction goes smoothly. Ultimately, these new rules should help to make sure that every borrower has the same accurate information about their loan, and that they have it earlier in the process. When that’s combined with Fannie Mae allowing for information to be provided easier, and more borrowers to be able to get loans, this should all be good for the industry. If you have questions about any of the changes, contact us to talk about it!
For more information, you can also view a detailed webinar on the changes here:
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