The previous article on the TILA/RESPA Integrated Disclosures (or “Know Before You Owe” mortgage initiative) was a description of how and why we got to these changes. This article will offer a description of the finer details of the new regulations and the required waiting periods. My next article will discuss the steps Northview Bank has taken to help ensure we can offer a smooth transaction in the real estate financing process.
The mechanics of these changes are dry at best. That said, I believe it will be useful for all interested parties to have an understanding of what is changing and how the changes may affect the timeframes of a loan closing.
Loans covered under the new disclosure requirements have been expanded to include all consumer purpose closed-end mortgage loans, including bare land and cooperative housing secured loans. Many trusts will also fall under these new disclosure requirements.
Some of the terms that have been common to us are also changing. You will soon be familiar with the acronym “TRID” for TILA/RESPA Integrated Disclosures. “Loan Estimate” will replace the familiar term GFE and Early Truth in Lending disclosure (or Early TIL). “Closing Disclosure” will replace or be used synonymously with the HUD or Settlement Statement reference.
Once a lender receives an application they will have three business days to issue the Loan Estimate. This is nothing new. The law will require a seven-business-day waiting period after the Loan Estimate is delivered before closing can occur. The new part is that the lender cannot wait to receive verification documentation from a borrower before having to issue the Loan Estimate. In addition it will be unlawful for a lender to collect any fees (such as appraisal fees) from the borrower until the borrower has agreed to proceed with the loan terms presented in the Loan Estimate.
The mechanics of the process will likely cause the lender to issue the Loan Estimate and then get verification documentation from the borrower. The verification documentation may not match the information the borrower provided on the initial application. (For example, available cash assets for closing are often overstated in an application, causing a change in loan amount.) A change in loan terms will require the lender to issue a revised Loan Estimate within three business days of discovering the need for the change. The revised Loan Estimate brings an additional seven-business-day wait period prior to closing. This wait period can be shortened to four business days if the borrower receives the revised Loan Estimate in person.
The borrower will need to receive the Closing Disclosure (formally known as the HUD/Settlement Statement) at least three business days prior to closing. Certain changes prior to closing will require a revised Closing Disclosure, triggering another mandatory three-business-day waiting period after the borrower receives the corrected Closing Disclosure.
The new disclosure requirements, wait periods, revised Loan Estimates, Closing Disclosure, and wait periods are expected to cause the closing cycle to be expanded. In the past it was common to close a loan under 30 days from the date of the application. It seems unlikely that any lender will be able to close a loan covered in these laws in under 30 days from the date the lender has the fully executed purchase agreement. At least until everyone is comfortable with the new laws, I would strongly encourage lenders to extend proposed closing dates to 45 or more days for any consumer purchase requiring mortgage financing.
The Consumer Finance Protection Bureau (or CFPB) is the governing body of these changes, and has provided a resource specifically designed for Real Estate Professionals, consumerfinance.gov/know-before-you-owe/real-estate-professionals. I would encourage you to take a few minutes to review this website. I also included resources that can be shared with your buyers who intend to use mortgage products to buy real estate.
The next article in this series will discuss specifically what Northview Bank is doing to prepare for the pending changes.
This is the second of a three part series.