New Real Estate Closing Disclosure
What’s Changing in Real Estate?
HUD forms currently used today in the closing of a real estate transaction, have been used since 1974 and are outdated.
The HUD form is, an itemized three page form with a summary of charges for the buyer and the seller. This HUD form is the guideline for how money will be distributed at the closing of a real estate transaction.
These HUD forms will be replaced with a new “Closing Disclosure” (CDF) which will be a five page form.
Good Faith Estimate and early Truth and lending disclosure will be replaced with a new “Loan Estimate” (LE).
This new Closing Disclosure and Loan Estimates will used for any new contracts effective October 3, 2015 onward.
This is a major change in the residential real estate industry which impacts every real estate closing that is financed. It is effecting everyone involved, buyers, sellers, mortgage brokers, lenders, title companies and real estate agents.
Home buyers need to understand how their real estate transaction will change and how information will be conveyed if property is purchased after October 3, 2015.
Whats driving the big change?
Current industry problems are driving these changes. Mortgage fraud, financial discrimination, coercion to use specific title company, mortgage or insurance company. These new closing disclosures make it clearer that the consumer is not obligated to use the real estate agents preferred vendors.
Who is the watchdog?
Consumer Finance Protection Bureau (CFPB) is the main driver in creating these changes across the industry. CFPB is a consumer protection agency that has the power over any industry that deals with consumer financing.
- Greater consumer protection
- Rewriting mortgage financing rules
- Consolidate disclosures
- Enforcing existing regulations and corrective actions
- Lenders accountable in their vendors that break the law
Why it is important?
CFPB is taking their job seriously of protecting consumers by making transaction documentation clearer and more transparent to consumers. They will also step up taking legal action against any party or individual that is defrauding, over charging, or financially harming the consumer.
Recently in the news, as a result of CFPB investigation, Citibank will have to pay $700 million to its customers for deceptive dealings. This is an example of the enforcement of CFPB. They are truly no nonsense in their effort to protect the consumer.
Buyers Broker of Florida loves it!
I just took a 3 hour class on the new process, and I love it. It makes everything simpler and clearer for the home buyer about what their exact costs are and there is less chance of hidden fees. This new closing disclosure is a big improvement.
As a Buyer’s agency office, our first job is to make sure the buyer is fairly treated in the real estate transaction. We are constantly correcting title companies in making sure buyers are not paying sellers costs, and fees have been calculated correctly. It’s nice to know there is a higher organization that is pushing for change and accuracy.
We also see title companies not offering the highest protection of title insurance to buyers. Title agents simply exclude coverage rather than take the time to investigate to eliminate “exceptions” to the title policy. That’s why we recommend buyers hire their own title company.
Educate yourself on Loan Estimate and Closing Disclosure
This change will no doubt delay the buyers loan process so the timing of closing will need to be adjusted.
Loan Estimate Process
The lender must provide the buyer with the Loan Estimate (LE) within 3 day of loan application or 7 days prior to closing. The LE must have reliable numbers in good faith. The buyer has 10 days from receipt to decide to proceed with the loan and the appraisal cannot be ordered until buyers chooses to do so. This maybe 3 weeks from contract. The only item that can be charged by the lender upfront is a credit report. The buyer must first proceed with acceptance of loan terms, before the lender can charge any additional fees.
Closing Disclosure Process
In today’s world, lenders are always rushing to provide the title company the closing documents so buyers can review the charges ahead of closing. Sometimes it happens only a few hours before closing. With the new Closing Disclosure, the lender has to provide buyer notice of the final Closing Disclosure for review three days before closing. So no more last minute panic to review buyer charges.
To accomplish this, the final loan approval and documents, along with other title charges will need to be received and finalized about ten days prior to closing. The buyer must receive the Closing Disclosure three days ahead of closing, or they can delay closing. If there are any changes needed on the Closing Disclosure it will require another three day waiting period before a closing can occur.
If there is a change of the loan product during the transaction of APR by 1/8%, or new terms, it will require another delay. Changes will require another a new closing disclosure and another three day waiting period. In addition, any last minute re-negotiations can cause a trigger of the three day wait and delay closing.
We estimate that closing of a financed transaction be extended from 30-45 days to about 60+ days.
Real Estate contracts will need to be updated to accommodate the changes with the Loan Estimate and Closing Disclosure.
What will new forms look like?
The new Closing Disclosure forms will be ten pages, with a compilation of Loan Estimate, Closing Disclosure, and Closing Disclosure for the seller which also itemizes the sellers charges.
These forms will offer greater detail in a user friendly format. However, the volume of pages and numbers will require the buyer to flip pages back and forth to cross reference numbers, which can be cumbersome.
Buyer Broker of Florida is committed to understanding this new process and passing along pertinent information to Home Buyers. If you thinking of purchasing a home in Central Florida call us for information on your best option. 407-539-1053.