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“All great changes are preceded by chaos” -Deepak Chopra – New Changes in Real Estate Closings

April 16, 2015

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John D’Ambrogio

From our very own Craig Anderson, who seems to be winding his watch waiting for changes in real estate closings:


Although planning has been going on for two years, the buzz about the new closing regulations have finally reached cacophonous levels now that we are only five months out from the start date of August 1, 2015.

The new regulations will apply to almost all transactions involving a federal insured mortgage (except HELOCs) and everyone will need to get accustomed not only to new forms and new tolerances but also to the new lingo that will be employed.
There will no long be Good Faith Estimates (GFEs) or Truth in Lending disclosures. Those two forms have been combined into a single “Loan Estimate” form. The funny thing is that it is not really an “estimate” in many respects since lenders will be held to the exact number used for most of the charges listed and have to come in within 10% on many of the others. Also, the estimate must be given within three days after six items of information are collected: The consumer’s name, income, Social Security Number, address of the property, estimated value of the property, and the loan amount. Odds are that either lenders will collect less information up front or they will have to issue loan estimates fairly early in the process

The other major form change is that the HUD-1 Settlement Statement is being replaced by the not very creatively named “Closing Disclosure”. Similar to the former HUD-1, it will be a memorialization of the settlement, but instead of both parties signing one HUD the Seller and Buyer will each receive their own, showing the figures for their side of the transaction. The Closing Disclosure will also repeat the information that was on the Loan Estimate so the consumer can compare and be assured that figures were in deed what was expected. It will also have a nifty section that lists the contact information of the Lender, Mortgage Broker, Listing and Selling Real Estate Broker, and the Settlement Agent. The biggest change is that it must be delivered to the consumer a full three days prior to closing and if there are changes during that the three day period, the closing could be delayed.
The Consumer Financial Protection Bureau (CFPB) is holding the lenders liable for the accuracy of the documents, so it is likely that these Closing Disclosures will be generated by them instead of the closing agents as is current practice. With such culpability looming, lenders might be less willing to accommodate changes to the dsclosure since a loan that has a potential RESPA/TILA error will, at a minimum, be difficult to sell on the secondary market. Lenders are going to want to make sure that risk is minimal and will therefore not be very tolerant of last minute changes.
Quoting Ken Trepeta – Director – Real Estate Services – National Association of REALTORS®:

“Real estate and other industry professionals should no longer expect to be able to make last minute changes at the closing. They should prepare their clients for this as well. A good rule of thumb then is if you want to close on September 30, make sure everything is ready on September 23rd. Some may point to the “bona fide financial emergency” exception and feel this is a way around the three day rule. It is not- the bona fide emergency must be a serious emergency – not losing a locked in interest rate for example but rather more like one will be bankrupt if the deal does not close. And one will have to put it in writing in one’s own words, not a form letter. Even then, it will have to be approved by the lender and given the way loans are actually made and closed, the ultimate lender will not likely be present at the closing so this approval (and approval of any other changes for that matter) will not be quick, if it comes at all.”
Additionally, it would be very prudent for brokers to confidently and knowledgably speak to these changes with their customers. Use of new nomenclature will be important. Lenders are now Creditors; The Borrower is now the Consumer; Tolerance is now Variance; and the Closing is now the Consummation. (Hold the jokes, please.)
Let’s all plan for a frustrating and bumpy transition as these changes become familiar and the entire process once again evolves to one smoother and more flexible. With the expectation bar appropriately lowered – think how elated we’ll be if problems don’t occur!
Craig Anderson, C.P.A., SCRP, SGMS
C.E. Anderson & Company