Thinking about buying a home anywhere in the US of A? Well, things are about to change in the complex, lengthy path between mortgage loan application and the closing table with two goals: integrating and simplifying.
Let's start with some quick background. In lieu of the global financial collapse, which some would say had its origins in overzealous home lending practices (ever heard of the "stated income" loan?), 2010's Dodd-Frank Act was passed by Congress. Dodd-Frank set up the Consumer Financial Protection Bureau as a separate government entity. The CFPB soon gained jurisdiction over RESPA, or the Real Estate Settlement Procedures Act that became law in 1974 in order to clarify all home settlement procedures and costs for the consumer, in addition to eliminating kick-backs and other shady practices. Additionally, TILA, or the Truth in Lending Act (circa 1969) has another redundantly overlapping set of forms and rules which clarify on the lending side that consumers shall be informed of their loan rates in common, universal terms such as APR.
These laws are all good things, but not necessarily living in harmony with each other.
Know Before You Owe!For years, there have been four forms to fill out--two from TILA and two from RESPA--much of which overlap and have inconsistent legal language. The new TILA/RESPA reforms, which go in to effect this week on OCTOBER 3RD, 2015; integrate those four
The new Loan Estimate form integrates and replaces the existing RESPA Good Faith Estimate (GFE) and the initial Truth in Lending forms. The Loan Estimate must be sent to the consumer by the lender within three business days of the completed loan application. Consumers can’t be charged for fees until after they’ve been given the Loan Estimate form and consumers have agreed to proceed with the transaction. The Loan Estimate is way simpler than the current GFE and should dispel any confusion about the term of the loan you're about to commit to.
The new Closing Disclosure form integrates and replaces the existing RESPA HUD-1 and the final Truth in Lending forms. The Closing Disclosure MUST be delivered to the buyer at least three days before closing. This is good, because it gives all parties ample time to review the transaction before hitting the closing table. A re-disclosure is required due to an inaccurate APR, change of loan product, or prepayment penalty added. The clock restarts on that three business day waiting period for review. Additionally, the Closing Disclosure is MUCH easier to read and digest than the current HUD-1 form, which features an intimidating matrix of large numbers.
This integration and simplification process puts the onus on the lender; shifting much of the workload to the lender from the title company. The lender now has all the liability for preparation and delivery of the Closing Disclosure form, even if they allow the escrow company to do it. In order to educate my clients on the home mortgage process, the “Your Home Loan Toolkit: A Step-by-Step Guide”replaces the HUD Settlement Cost Booklet.
Although change is often feared at first, and having to delay closing by three days due to specific changes in the loan may be annoying for some, I firmly believe that the integration of these organization's forms and simplification of previously confusing mortgage and closing documents is going to be a great thing for the real estate industry and consumer protection in general. As they say, "Know before you Owe"!