By: Sebring Law
Starting August 1, 2015, all consumer home loan purchases will have a new form and process as a result of the Consumer Financial Protection Bureau’s new requirements. What will this mean for consumers purchasing homes with a mortgage? Longer time period between the signing of the Agreement of Sale and closing and more confusion for the buyer. In order to understand how the changes are going to complicate an already complicated process, first you need to understand the current process.
Before August 1, 2015, a typical consumer purchase with a mortgage took approximately 30 days from the signing of the Agreement of Sale to closing. The lender was required by law to provide the buyer a draft of the HUD-1 (or Settlement Statement) which details all of the credits and costs relating to the purchase and sale of the home at least 1 day prior to closing. The HUD-1 also lets the buyer know how much money he or she needs to bring to closing. The HUD-1 is prepared by the closing company with information gather by the closing company, realtors, and the lender. At closing, the buyer signs numerous forms regarding the terms and conditions of the loan. The most important forms are the Note, Mortgage, Truth In Lending (“TIL”) and Good Faith Estimate (“GFE”). The TIL outlines the interest rate, finance charge, amount financed and total payments over the life of the loan. The GFE compares what the lender quoted the closing and loan charges to be and the actual closing and loan charges on the HUD-1. The Note, Mortgage, TIL and GFE, along with the other loan and closing documents are all signed at closing. The HUD-1 is signed by both the buyer and seller.
After August 1, 2015, the HUD-1, TIL and GFE will be combined into 1 long form called the “Consumer Disclosure” that only the buyer will sign. The Consumer Disclosure will list the HUD-1 charges on the 2nd and 3rd pages. The TIL is more or less the 1st page of the Consumer Disclosure and the GFE is on the 3rd page.
The biggest change will be how much time the buyer will have to review the Consumer Disclosure prior to closing. After August 1, 2015, the lender will be required to give the buyer 3 business days to review the Consumer Disclosure form. The 3 business day period begins after the buyer has received the Consumer Disclosure. If the Consumer Disclosure is mailed to the buyer, an additional 3 business days must be added to allow for delivery. That would be a total of 6 business days to wait while the buyer is reviewing the Consumer Disclosure. One important note is that these specified waiting periods cannot be waived by the buyer and the lenders face steep financial penalties for failure to comply with the notice periods. The liability and risk is all resting on the lenders shoulders, so the lenders will most likely be very cautious when implementing and complying with the Consumer Disclosure law. This means that the typical time from Agreement of Sale to closing will most likely be 45 days instead of the standard 30 days.
The lenders also have a requirement that certain “Zero Tolerance” items cannot deviate from the GFE to the Consumer Disclosure. Examples of some Zero Tolerance items are, transfer taxes, fees paid to the lender or broker, fees paid to an affiliate of the lender or broker, and fees for services the lender does not permit the buyer to shop for (i.e. credit reports, etc.).
So what do all of these changes mean to the consumer? There will be an increased amount of time between the signing of the Agreement of Sale and closing. In addition, since lenders have increased liability when lending consumer loans, lenders may become more selective in which individuals they loan money to. This may end up resulting in less people obtaining loans to purchase their homes.
For more information regarding the recent changes to the Consumer Federal Disclosure law, or any other real estate matter, please contact either Brenda B. Sebring, Esq. at (412) 856-3500 for a one-on-one discussion.
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