This fall, the Consumer Financial Protection Bureau (CFPB) begins requiring banks to provide consumers with a longer window in which to review loan documentation. The new rule, potentially in effect October 3, 2015, can push closing for San Diego home sales by as many as six days—to more than a week—longer than usual.
This means buyers (or sellers) needing to close quickly may need to begin negotiations sooner in order to meet a move-in/move-out deadline. Slower closings are on the way!
On the other hand, the changes could push an advantage to all-cash buyers over those needing conventional financing, as sellers looking to close quickly may choose a faster close over a higher yield. In a hot seller’s market, cash may be king for the buyer.
Here’s a breakdown of TRID:
The federal government will now require that loan disclosure documents contain a combination of both the Real Estate Settlement Procedures Act (RESPA) and the Federal Truth in Lending Act (TILA) in a document known as the TILA-RESPA Integrated Disclosure (TRID). The ruling, known as “Know Before You Owe” must accompany the Loan Estimate and include all charges, fees and line items at least three (business) days before closing. In the past, this information was given to consumers on the day of closing on the HUD-1 form–which no longer will be necessary.
These changes are intended to mitigate the potential for surprises at the closing table. They also offer an advantage to buyers since any increase of more than one-eighth of a percent during the three-day window—or other changes such as pre-payment penalties, additional fees or other items that might increase the consumer’s financial responsibility—will now require entirely new documentation plus another three-day window. It is important to note that a decrease in interest or fees will not trigger such a delay.
(Do you think lenders might start over-stating fees and then possibly lowering at time of closing to avoid undesired delays?)
According to the CFPB the new forms will be easier to understand and use. During consumer testing, participants returned more correct answers about their sample mortgage using the new forms, compared to the traditional forms. The new form lists the total loan amount, interest rate, monthly principal and interest and projected payments on the first page of the form. Closing costs and cash required to close appear at the bottom of this easy to read page. That is a big win for buyers.
Specifically, the first section on the face of the document clearly indicates if the amount of the loan, interest rate and monthly principal and interest can increase after the closing, and any prepayment penalties and balloon payments are clearly indicated.
In the second section, projected payments for the life of the loan, including the years in which increases may occur, gives the buyer needed information for future financial planning.
The primary advantage for home-buyers is that the three-day window allows them to walk away from a deal without penalty in certain circumstances–and also allows them to more quickly understand the terms of their mortgage.
A disadvantage for those needing to close quickly is that bankers, mortgage lenders, escrow officers and other real estate professionals will need to learn the new documentation and set up computer software and other systems to prepare for this coming change.
If you have questions about the new forms and how to understand them, give Roberta Murphy a call at 760-942-9100 and she will likely, for additdional information, refer you to a trusted lender or escrow professional.
A warning to all our clients: When buying a home with a mortgage this fall, be certain to calculate additional time in closing to accommodate the new ruling.