The coming changes to the real estate closing process for financed transactions have been trumpeted by some as ominous or potentially disastrous for the real estate market. Exaggerations and misunderstandings have led to this sense of impending doom, but the reality is that these changes are beneficial for consumers and won’t markedly delay the vast majority of transactions. What this will require is even better communication between all those involved in a transaction. This will include all real estate agents, the lender, title company, and escrow officer. All the more reason to employ premier caliber agents like Team Woodall (shameless plug indeed) who can efficiently communicate and navigate the closing process. Now, this summary below isn’t meant to cover the minutiae of the new guidelines but rather provide an overview of the key points.
These new TILA-RESPA requirements take effect October 3rd, 2015.
Loan Estimate
Previously lenders were required to provide borrowers with a Good Faith Estimate and Truth-in-Lending disclosures after receiving their loan application. These documents are being replaced by the new Loan Estimate form which also must be sent to the borrower within three days of receiving the completed loan application. A sample of this new document can be viewed at this link. One of the goals of the new Loan Estimate was to make information provided to the consumer much easier to understand and view. A simplification of the information is hoped to create more informed consumers.
Page one of the new Loan Estimate contains general information about the borrower, property, and loan type. Below that are three distinct sections regarding the loan terms, projected payments, and costs at closing. Page two of the loan estimate provides those closing cost details. This includes the costs associated with the loan itself on the left column which are further broken into categories of origination charges, services you cannot shop for (appraisal fee, credit report, etc.), services you can shop for (pest inspection fee, title policies, etc.), and then it tallies those total loan costs. The right column shows other closing costs that are put into the categories of taxes and government fees, prepaids (homeowner’s insurance, mortgage insurance, prepaid interest, and property taxes), initial escrow payment at closing, other fees, and then a total amount of all these costs. The very last part of that page is a breakdown of the cash needed to close. The final page allows for easy comparisons from lender to lender and other considerations like whether the loan is assumable, late payment charges, and if the loan originator will service the loan or sell it.
Closing Disclosure
Now, the Closing Disclosure and its timeline is where most the “nervousness” arises with these new requirements. A sample of this new Closing Disclosure document can be viewed at this link. The information on the Closing Disclosure mirrors much of what was on the Loan Estimate. This is done purposefully so buyers can directly compare what was quoted to them and the final charges at closing. One change with this form though is that it’s going to be prepared more by the lender than the title/escrow company as has been the custom previously.
The biggest change with the new Closing Disclosure is that lenders must provide this Closing Disclosure at least three business days before the consummation of the loan. Previously some transactions had lenders sending over documents the day of closing to the escrow company and buyers scrambling to get in and sign to close the transaction. This will no longer be the reality and lenders will have to be much more proactive. Additionally, there are triggers which can cause a new three-day review period for the buyer. These events are:
1. The APR (annual percentage rate) increases by more than 1/8 of a percent for regular loans (most fixed-rate loans) or 1/4 of a percent for irregular loans (most adjustable loans). It’s noteworthy that a decrease in the APR does not necessitate a new three-day review if it’s because of a change to the interest rate or other fees. Lenders have been required to provide this review for APR changes since 2009 actually.
2. A prepayment penalty is added – as this would make it more expensive to refinance or sell.
3. The basic loan product changes. This would be a switch from a fixed-rate loan to an adjustable for instance.
As you can see above there aren’t too many usual circumstances that would cause an additional 3-day review that could delay a transaction from closing as scheduled. Overall it’s going to be more common to see 45-day closings rather than the more typical 30-day closings that occur here in Arizona with frequency. This will allow for more time that the lender can use to ensure the Closing Disclosure gets out to the buyer with three business days time. Better to under promise and over deliver than the opposite. The takeaway is that while there will be some additional requirements and new forms associated with TRID it’s not going to have a huge impact on most sales. Contact Team Woodall if you have any questions about these new requirements that are just about to take effect.
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