From the Law Offices of Marino Partners LLP
Real Estate Closings – Changes: In an ongoing effort to further simplify the home mortgage application and settlement process and as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Consumer Financial Protection Bureau (“CFPB”) issued a final rule on November 13, 2013 that will transform the closing process for mortgages acquired in connection with the purchase of residential real property. The changes will take effect on August 1, 2015, and include the elimination of both the Good Faith Estimate (“GFE”), and the Truth in Lending Disclosure (“TILD”) disclosures. The objective is to simplify the mortgage process in order to help consumers better understand their mortgage and make loan comparisons. The new settlement statement will be called the “Loan Estimate,” and will incorporate features of the both the GFE and the TILD. Furthermore, the current HUD-1 Settlement Statement will be replaced with a form called the “Closing Disclosure.”
As part of the new changes, and in order to provide consumers with sufficient time to review and understand the loan terms, there are specific timing requirements relating to the distribution of both the Loan Estimate and the Closing Disclosure. Specifically, a lender will be required to provide a consumer with an accurate Loan Estimate three days after the submission of a loan application that includes only six items, including: the consumer’s name, income, social security number, address of property, estimated value of property, and the loan amount. In addition, the Closing Disclosure must be provided to the borrower three days prior to closing. If changes are made to certain items included on the Closing Disclosure, then the parties may be required to delay the closing date for an additional three days. The purpose of the delay is to allow additional time for the borrower to review and understand the modifications being made to the loan. This requirement may be more of a challenge since current practice for many lenders is to approve the HUD-1 Settlement Statement Thus, many of the changes currently being made at the closing table will no longer be permitted without delaying the closing. Lenders and real estate professionals believe that consumers should be afforded an opportunity to waive certain issues without having the consequence of a delay in the closing.
One additional concern expressed by lenders and real estate professionals is that the Loan Estimate is not really an “estimate” since the lender will be held accountable for the accuracy of the charges identified therein. Since the Loan Estimate must be provided to consumers within three days of receipt by the lender of the six simple items described above (which may be premature), lenders will be required to provide loan estimates very early on in the loan application process. This may be too premature and result in lenders providing estimates that are higher than necessary in order to avoid infractions. Thus, the lender with the least expensive closing costs may not appear as such since their loan estimates will appear to be higher. Accordingly, consumers will not have the ability to properly evaluate a loan prospect.
The upcoming changes to the settlement process will require advance planning by real estate professionals, lawyers, banks, and consumers. Although the CFPB is considering certain modifications to the new rules in light of the feedback it has received from by the National Association of Realtors and other real estate professionals, the best advice is to plan early and allow for enough time to deal with any unforeseen compliance issues. The new forms are currently available on the CFPB website (http://www.consumerfinance.gov/knowbeforeyouowe/).
Marino Partners LLP is a boutique financial services & corporate law firm based out of White Plains, NY