cfpbNew mortgage-disclosure law has agents, banks scrambling


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By Brian Pedersen, August 10, 2015 at 8:00 AM

Residential real estate professionals are preparing for new procedures that aim to streamline the mortgage process for homebuyers.

The Consumer Financial Protection Bureau has issued a final rule moving the effective date of the Know Before You Owe mortgage disclosure rule, also called the TILA-RESPA Integrated Disclosures rule, to Oct. 3.

The rule aims to help homeowners have an easier time understanding the terms of a mortgage, according to the federal agency.

But it will force real estate agents, lenders and title companies to remain vigilant that all required documents are completed accurately and on time. It requires greater collaboration, communication and teamwork among all parties.

“We are going to have to be on top of our game,” said George Raad, broker and owner of Harvey Z. Raad Realtors of Allentown. “I believe there are going to be some rough waters in the beginning.”

The rule requires more accessible mortgage disclosure forms that describe the terms of a mortgage for a homebuyer in more clear language. According to the bureau, moving the effective date from its initial introduction on Aug. 1 to Oct. 3 may benefit the industry and consumers with a smoother transition.

The industry has more time to prepare, and consumers have more time to examine the documents.

Closing statements now need to be in the consumer’s hand (not including mailing time) three days before the closing date, which means Realtors will need to allow more time for the delivery of the disclosure date. Consumers then have the benefit of having all information in front of them a minimum of three days before the closing date.

The two new documents are designed to be easy to compare, said Mimi Schutter, executive vice president of Fulton Mortgage Co., part of Fulton Financial Corp., which has a network of Lehigh Valley branches under Lafayette Ambassador Bank.

The lending estimate form has changed and is a substitute for the good faith estimate. The closing disclosure replaces the [Department of Housing and Urban Development] HUD-1 settlement statement, Schutter said. Previously, there was no timetable on getting these forms to the customer.

“It’s aimed toward simplifying the process,” said Ryan Conrad, CEO of the Greater Lehigh Valley Realtors. “We are just making sure our Realtors are better prepared. We think our Realtors are able to adapt and will handle it just fine.”

The Realtor organization has conducted several forums on the topic, offering different perspectives on the legal issues from title companies and Realtors, to inform its members, Conrad said.

“We have done a lot of promotion; I am confident, they are aware of it,” he said.

For Realtors, the settlements and closings are expected to take about three to four weeks longer to occur. As an example, closings typically take 45 days but now could take 60 days, depending on the preparedness of the buyer, Raad said.

Since the home usually is inspected, any costs to be negotiated must be done well in advance.

“The closing document has to be precise and accurate with what the lending estimates are,” Raad said.

Three factors that would trigger a delay in closings are the change in the interest rate, a change in the loan product, such as moving from a fixed rate mortgage to an adjustable rate mortgage, and a pre-payment penalty.

“All of us are going to have to be working together to accomplish the main goal, which is to make the client happy,” Raad said.

The new rules could affect back-to-back closings, Raad said. These simultaneous or double closings need to be more tightly coordinated to follow the timeline.

“That’s going to be a major change in our process,” he said. “I think there is risk with that, because if something goes wrong with one, it will trickle down to the other. We are going to have to really be on top of our game to make sure the lines of communication are open. That’s paramount.”

However, it’s the lenders who are assuming the risk, even though the Realtors, title company and clients also have to follow proper procedures.

“As long as we are focused on making sure that process is done in a timely manner, we will be fine,” Raad said. “We are the hub to the wheel, in my opinion.

“We gotta make sure each of the spokes know what they are doing. Communication is definitely key to a happy closing.”

The lending industry is very concerned about the new regulations, said Jill Carson, president of Fulton Mortgage Co.

“I think everyone was happy to have the extra two months to prepare,” Carson said of the extended deadline.

Carson said Fulton Mortgage only received some of the required software in June and is grateful Fulton has the opportunity to test it and be more comfortable using it.

The comprehensive change in the way mortgages are processed will affect everyone in the industry, from lenders to title companies and Realtors, she said.

“It will have a broader impact because the closing piece will impact them the most,” Schutter said.

Some lenders already may be prepared and are implementing some changes now to get ahead of the game.

“I feel pretty strongly that the industry overall is well aware of the hurdles and what needs to be done,” said Steve Olson, executive vice president, director of National Penn Bank’s Mortgage Group, Boyertown. “It’s a pretty significant change.”

While Olson said there is concern among the lending industry about the new procedures, the extension gives people more time.

“To access our workflows, that extra time allows that process to be more fine-tuned,” Olson said.

Olson said National Penn’s mortgage group has been doing a lot of educational outreach to people in the industry, participating in webinars and performing scenario testing.

“I think at the end of the day, if you sit down and look at these new forms and what the actual costs are, these are more consumer-friendly forms,” Olson said. “There is a lot of commonality in how they are set up. It’s a positive.

“The challenge is just getting from where we are now to post-implementation.”

For lenders, even if they are sending the documents electronically, they need to be mailed to consumers at least six business days in advance of the closing date, Carson said, in order to ensure delivery by the three-day deadline.

“It is definitely going to require the customer to get the information to us further in advance,” Carson said.

These new procedures are effective with applications taken on or after Oct. 3, Carson said.

“We have been working on this project for over a year now,” Schutter said. “We are training staff and making sure everyone understands the requirements. I think everyone is on board. To get the customer to closing, that’s our goal.”

Carson said she anticipates that Fulton Mortgage will have to add staff once the regulations go into effect.

The goal would not be to have surprises for the customer. If the customer changes his or her mind on a product, Fulton tries to accommodate that request to the 11th hour, she said.

“That’s one of the reasons everyone will have to be prepared,” Carson said.

“The real purpose of [the new rules] is to benefit the customer; that’s why the regulatory bodies came up with the rules.”

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