If you have purchased real estate with a mortgage in the United States you most likely were inundated with various disclosure forms prior to and at the closing. The documents included the Good Faith Estimate, Truth In Lending and a personal favorite, the HUD-1 (a dual-column page for which a magnifier glass and a dictionary should have been included).
In a nod to simplicity and less complex disclosures, the documents are being replaced. Starting today buyers will be introduced to a a simpler loan estimate and closing disclosure under the ” Know Before You Owe” program developed by the Consumer Federal Protection Bureau.
Bid farewell to the good faith estimate, two truth-in-lending forms and the complicated HUD-1. Replacing them are a simpler loan estimate and closing disclosure under the ” Know Before You Owe” program developed by the federal Consumer Financial Protection Bureau.
The immediate beneficiaries of the program are borrowers. In addition to the new forms offering a sense of simplicity, the standardization of the forms will allow borrowers to compare loan offers on an apples to apples basis. For many borrowers, interest rates and loan terms fairly competitive, the variations and added fees and closing costs are now more apparent and easy identifiable.
Yet from personal and client experience one of the new rules, i.e. the final disclosure must be in the borrow’s possession three days before closing is a benefit. The old rules required the disclosure to be provided 24 hours prior to the borrower. The new rule allows more time for scrutiny and additional time to rectify any issues.
I believe the new forms will be beneficial for all parties involved HOWEVER a few caveats:
Learning Curve: While the mortgage industry has been aware of the revisions and the original implementation was scheduled to be over the summer, the reality is there will be some confusion during the 4th quarter of the year. Thus most brokers I know are pushing contract signing to closings to 45 days for transactions inclusive of financing just to add a bit of cushion to the process.
Being Aware of the 3-Day Disclosure: This could be more of an issue for lenders and mortgage brokers as the past disclosures were due 24 hours prior to closing. Thus I am advising my clients to consider closings on Thursday or Friday to allow proper disclosure delivery during the work week.
Last-Minute Credit Reports: Historically lenders would pull a borrower’s credit report the day before or day of the closing to make are there have not been any substantial revisions. While usually not an issue as most brokers advise buyers to avoid large purchases prior to closing, a revision to one’s credit rating can in turn change the interest rate offered and any change within the 3-day disclosure restarts the disclosure clock thus adding a minimum of 3 days to the closing. In addition to the mortgage documents, the transaction contracts would have to be amended by both buyer and seller and if the transactions are contingent or stacked, there could be a domino effect.
Once all parties work with and become familiar with the new disclosure documents will be a definitive benefit to consumers. Yes the learning curve will be steep and I would assume over the next few weeks there will be delayed closing (and full disclosure I am attending a closing on Friday 10/9 representing a family member as their Attorney-In-Fact and I hope not to be delayed).
Most brokers I know have become familiar with the new disclosures and subsequent documents as many of us have taken classes concerning the revisions during the Spring assuming a summer implementation. As a broker I am pleased as explaining a Hud-1 was always a challenge (even with reading glasses) and having the 3-days prior to review, allows me to take clients to lunch and review documents versus a quick coffee and a highlighter.
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