CHANGING THE WAY WE NOW DO BUSINESS IN THE PURCHASE AND SALE OF CONSUMER RESIDENTIAL REAL ESTATE
NEW RULES~CFPB EFFECTIVE 3 OCTOBER, 2015
The new TILA-RESPA Integrated Disclosure rule (known more commonly as TRID) was scheduled to take effect 1 August, 2015, and now postponed by CFBP TILL 3 OCTOBER, 2015
Why did CFPB delay TRID — and how are loan origination systems preparing?
Earlier this month, the CFPB pushed back the implementation date from Aug. 1 to Oct. 3, claiming that an “administrative error” was responsible for the delay. More here
What does this mean to Lenders, Buyers, Sellers, Realtors, and Service Providers to the Sale and Purchase of Consumer Real Estate?
Well, let’s cut to the chase–The new TRID rules for “Consumer” loan transactions will become effective for everyone, 3 October, 2015, from the latest information given.
The New Loan Estimate and Closing Disclosure will be prepared by the borrower’s lender. (There might be a few exceptions but most all lenders will want to prepare the Closing Disclosure because there are strict penalties for any mistakes that affect them.)
In addition, Title and Escrow companies will have separate settlement statements, that are prepared for the seller, for these transactions. Title companies will need to have all the necessary costs for the escrow earlier than previously required, and will need to work closely with the lenders to obtain these escrow closing costs, for the Closing Disclosure, prior to that document being delivered to escrow.
All the inspections and bills, associated with the closing, will need to be turned in at least 2 weeks prior to the close of escrow (not currently a practice) such as:
- Septic Certifications
- Seller negotiated items, resulting from inspections, to be resolved
Once the loan disclosure is issued, further negotiations which would change the loan amount and affect the APR more than 1/8 percent, would TRIGGER the Loan Estimate and or the Closing Disclosure to be revised. In this case, the required timeline would restart for the borrower and may precipitate the Close of Escrow needing to be extended.
With the new rules on “Consumer” transactions, Septic Certifications, surveys, Insurance Binders, and all other bills paid out of escrow should be turned in to the title company no later than 2 weeks prior to the closing date.
Because of the time lines that must occur with the new rules – it would be wise to have the close of escrow allow for 2 weeks grace period in which escrow closes on a specific date, but no later than a final date. This grace period will allow for unforeseen circumstances which may occur, allowing for your transaction to still close on time. With an active market – this may be a vital element to include with the initial offer and acceptance. If it is not done, an extension could be negotiated by addendum, when needed, if all parties agree.
If the loan program should change because the borrowers do not qualify for the one they applied for, in underwriting the loan disclosure would need to be rectified with the time line changed accordingly. Working with a lender that qualifies a borrower/buyer and gather all the documentation necessary is vital for a smooth clean transaction without surprises.
The new forms are easier to read and also spell out the cost of the loan to the borrower. These costs are mandatory to be accurate to the closing of the transaction. There is an adjustment of 1/8 percent allowed, on the APR, before triggering the closing disclosure to be reworked and resubmitted to the borrower which would cause a longer waiting time to signing the loan documents (the Note) and closing the escrow.
Violations by lenders, of not disclosing properly and following the guidelines set forth, are severe if investigated by the CFBP– recension of the loan and pay back of the funds. That’s huge indeed.
These laws are set forth for the following reasons;
- Know before you owe/be an informed consumer/borrower
- Easier to use mortgage disclosure forms
- Improve consumer understanding and risks
- Aid comparison shopping
- Prevent surprises at the closing table
- Eliminate predatory loan terms
- Require industries to collaborate
- Allow consumer/borrower time to understand the agreed upon loan terms
- Promote financial stability
CFBP was established by the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010
In addition~ There will also benefit for the investor who gave the loan to the consumer because the consumer will be fully disclosed and there will be clear concise information on each loan stored on a platform application. It will be an open book for the CFBP and the Federal Reserve Bank who fund the loans for the most part. Every party to the transaction will be clearly available in this huge data base, being put into place, in which every lender will use in the process of qualifying the buyer and closing the loan.
What Transactions apply?
- Consumer Residential Loans – 1-4 Units
- Purchase Money
- Less than 25 Acres
- Vacant Land
- Construction only
VA, FHA, Conventional, USDA, & JUMBO loans. Portfolio loans the bank keeps and does not sell to the secondary market.
LOANS THAT DO NOT APPLY~
- Commercial Loans
- Land loans 25 acres or more
- Reverse mortgage loans
- HELOC Home Equity lines of credit
- Chattel-Dwelling/Mobile Home only loans
Creditors who originate less than 5 loans in a calendar year.
WHEN WILL THIS START TO APPLY WITH CONSUMER TRANSACTIONS?
If you have already applied for a loan with your lender and they have accepted your loan, with a specific address defined, prior to 3 October, 2015, then that transaction will close under the current rules with a HUD 1. Any loan application that has been accepted with a property address on 3 October 2015, or thereafter will need to be under the new rules and the new revised purchase contracts and associated documents. (SAMPLE CONTRACTS HERE.)
DEFINITIONS OF THE NEW RULES AND TIME LINES (TRID)
Submission of a consumer’s financial information for purposes of obtaining an extension of credit that consists of the following:
- Consumer’s Name
- Social Security number
- Property address
- Estimate of the value of the property
- Mortgage amount sought
All of the above must be submitted to the lender before starting a loan application and the lender must be provided approval to proceed from the borrower, which is the “INTENT TO PROCEED”; this may be verbal, or in writing, to the lender.
Within (3) three days of a Loan Application the lender must provide a Loan Estimate to the borrower, as defined below:
LOAN ESTIMATE (LE)
The Loan Estimate Form (replaces the Truth In Lending statement and Good Faith Estimate) – Provided to consumers within (3) three business days after submission of loan application. Provides summary of key loan terms and estimates of loan and closing costs, triggered by the Loan Application.
- Loan terms – loan amount, interest rate, monthly P&I, prepayment penalty, and balloon payment, if any
- Projected payments
- Escrow information/impounds
- Total estimated costs
- Closing costs
- Cash to close
- Estimated settlement fees
- Cash to close including credits, escrow and down payment
- Adjustable payment and interest tables
- Note: All costs related to title start out with the word “title”
- Comparisons including APR and the total amount of interest
- Other disclosures – appraisal, assumption, servicing, transfer
- Borrower acknowledgment and signature (not required)
- From acknowledgement of receipt of the Loan Estimate, consummation is a minimum of 7 days.
Consummation~ The signing of the note on the loan closing documents.
CLOSING DISCLOSURE (CDF)
A final written disclosure form that creditors must provide to consumers no later than (3) three business days before consummation of the loan (signing of the note) that reflects the actual terms and costs of the transaction. This form replaces the HUD-1 Settlement Statement and is often referred to by the acronym ,CDF.
Business Day~ (Closing Disclosure) all calendar days except Sundays and legal public holidays.
Business Day~ (Loan Estimate) A day on which the creditor’s lender offices are open to the public for carrying on substantially all of its business functions.
TIP~ An acronym standing for Total Interest Percentage; it is the total amount of interest the borrower will pay over the loan term as a percentage of the loan amount.
DELIVERY METHODS ALLOWABLE~
Mail Delivery~ Conveyances not made in person (including email) that are deemed to have been received at the earlier of : (1) three business days after they are sent or placed in the mail; or (2) upon evidence of receipt. (often referred to as Mailbox Rule)
Personal Delivery~In person, conveyances that are deemed immediately received.
Electronic Delivery – Methods of electronic conveyance, such as email, that are deemed to have been received at the earlier of: (1) three business days after they are sent; or (2) upon evidence of receipt.
Trigger~ Event that initiates a timeline.
Close of Escrow~The consummation of a real estate transaction, when the seller delivers title to the buyer in exchange for payment,by the buyer, of the purchase price. Pursuant to the AAR Residential Resale Real Estate Purchase Contract, close of escrow “shall occur when the deed is recorded at the appropriate county recorder’s office.”
NOW LETS TALK JUST A BIT ABOUT HOW TO WORK WITH THE NEW CHANGES AND HAVE A SMOOTH ON TIME TRANSACTION –THE BEST PART~
Smart buying and selling residential transactions that require a loan:
Consumers seeking a residential loan to purchase a home.
Get all your financial documents in order and the paper work handy.
Start shopping around to become knowledgeable of what loans are available. Check online or with a good lender you feel may work well for you. Not only are the best rates and loan costs, key, but so is the performance of that lender and how they will work with the new rules to get the job done.
If you are a buyer or seller who desires a 30 day escrow, it may be challenging to attain this goal with the proposed changes and time lines that must be adhered to, as a wait and review before the next loan process is a possibility.
Be a savvy buyer, do your homework up front – find a good lender, feel comfortable and get your application submitted. Know your options with respect to loans and lenders prior to writing a purchase offer.
Start looking at the market of available properties early, online, and pick a good Realtor to help you get started with receiving the best information on properties that would be a good fit.
This way when you set an appointment to view a property you are already pre-approved. You will save from 10 days to 2 weeks’ time in your escrow process. If the seller has multiple offers he may be inclined to go with a buyer who is ready and able to close sooner.
When your offer is accepted. Make sure you understand the time lines which are critical to a smooth transaction. Communicate with your lender, the title company, and your Realtor, timely, and know what is expected from you up front. Ask for a time line calendar of events – and keep it handy.
If for some reason you must change a loan type or lender – that will trigger more time needed and approval by the seller of that change moving forward. It can affect the close of escrow date and the seller concessions, in some situations, which the seller must be willing to approve. Shopping up front and picking a good lender is key to a smooth loan process.
It is all about team work here – your team is your Realtor, Lender, Title Company, buyer and seller.
Pick the experts that perform timely and professionally. The cheaper way to go is not always the best way, but shopping around is a good idea to be smart and prudent and make an informed decision.
Home ownership is one of the best things you can do to build assets, get tax write offs, and have a stable and wonderful home to live in without unexpected rent increases. Home ownership gives peace of mind and a feeling of family security.
Finally ask for an additional 10 days to two weeks for the close of escrow date to be extended up front for unforeseen time delays – especially with the new rules coming into effect.
For buyers seeking a residential consumer loan ~(TIP) always ask your lender how long they feel escrow will take, prior to presenting an offer.
Close of escrow date 45 days, not to exceed 60 days, would be a great idea…You can always ask for an earlier closing, if the seller is up for it, by amendment, if you are ready, early. What a good feeling that would be!
Watch for Trendy Monthly News August Edition- The topic will be HOW TO SET UP EFFECTIVE CLEAN TIME LINE TRANSACTIONS FOR CONSUMER SALES.
August Edition Highlights
- What to do before the offer to purchase
- How to coordinate with the lender on timelines
- Is a cheaper lender always better?
- Vital things to ask lenders in how they process their timelines to meet the new rules.
- What to ask the title company regarding timelines and coordinating with the Buyer/Seller/Realtors.
- How to pick a good Realtor to get the job done
- What consumers/borrowers/buyers need to do to have a smooth transaction.
- How to write your contract to best protect your client yet be something that will work for all concerned.
- Best communication practices for a smooth transaction with a “Consumer” Sale.
Happy 4th Everyone
Esther Talbert, Broker CEO Yavapai Realty, LLC
322 S Main St #B Cottonwood, AZ .86326
928-634-5546 | Serving the Sedona-Verde Valley since 73