In an attempt to better protect consumers from predatory lending practices, the Consumer Financial Protection Bureau (CFPB) has integrated the mortgage loan disclosures as required under the Dodd-Frank Act. What this means to consumers is two new forms. The Good Faith Estimate that discloses the costs of the loan at the beginning of the loan process becomes the Loan Estimate. The HUD-1 that shows the actual charges due at Closing becomes the Closing Disclosure.In addition to the new forms are a few new rules. During the loan process, there are several things that may happen that will require the lender to update the Loan Estimate and notify the consumer. Those triggers are changes in the charges. If there are negotiations during the inspection period and the seller gives the buyer a credit, it would be a trigger. If one of the estimated charges was inaccurate initially when the correction happens, it is a trigger. Depending on the amount of the changes, the lender must send a new Loan Estimate to the consumer. Lenders are only allowed a 10% increase between the charges disclosed on the most recent Loan Estimate and the actual charges on the Closing Disclosure. If initial closing costs estimates are $3000, the 10% rule only allows a $300 increase.
No More Surprises!
This all sounds great. Keep the consumer informed on the costs they will be paying at closing. No surprises at the closing table! Where these new rules may cause problems in our real estate transaction is the required delay between issuing a Loan Estimate and Closing. The requirement to wait three days to close has been added. Probably not a big deal. However, if something goes wrong and last minute changes are necessary, that could delay Closing. Both Buyer and Seller need to be on board in order to delay Closing. If the Seller doesn’t agree, it could be disastrous for the Buyer.
Starting October 1
The new rules were supposed to start August 1st but was recently pushed back to October 1st. That means the industry has a few more months to figure out how best to adjust to the new changes.
A Changing Industry
The Mountain Living Team knows it is important to stay on top of changes in our industry. Educating ourselves and the consumers as well as adjusting our practices to better serve our clients is a high priority for us. In response to the upcoming changes, we will be implementing new measures to ensure our Buyers are protected against any unexpected situations that could create a snag in the closing process and potentially put their earnest money at risk.
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