Ask a Real Estate Pro: Mortgage changes to slow home closings
By Gary Singer Sun Sentinel correspondent
New mortgage disclosure forms will change the way homes are bought and sold
30-day home closings could take 60 days as real estate industry adapts to new rules
Board-certified real estate lawyer Gary M. Singer writes about the housing market at SunSentinel.com/business/realestate each Friday. To ask him a question, go to SunSentinel.com/askpro
Big changes are planned for how homebuyers finance their mortgages, and that almost certainly means that closings will take longer. In some cases, closings that now speed through in 30 days probably will require at least 60 days.
The changes had been expected to begin in August, but the effective date was pushed back to Oct. 3.
After the housing crash, Congress felt that we needed a better system of mortgage disclosures and procedures so that Americans can better protect themselves and make the best choices when getting home loans.
The Consumer Financial Protection Bureau was created and charged with accomplishing this. The bureau decided that the four existing disclosure forms required under federal law would be changed into two new, more comprehensive documents - a Loan Estimate and a Closing Disclosure. These forms are known as the "TILA RESPA Integrated Disclosure," or more commonly, TRID. In addition, the closing process was unified so that all 50 states use the same forms and procedures.
Who do these new rules apply to?
They apply to residential properties that include a mortgage as part of the transaction - both sales and refinancings. The rules are designed to protect the buyer/borrower, but they will affect all parties to the transaction.
Lenders are bearing the brunt of ensuring compliance with the new rules, making the lender responsible for getting all of the other parties on board. The rules do not apply to commercial transactions or all-cash deals.
What is changing?
Buyers applying for loans will get a Loan Estimate (instead of the current Good Faith Estimate) within three days of applying for the loans.
The new form is designed to highlight key terms to enable borrowers to shop around for the best deals. It's supposed to be user-friendly and almost certainly will be, considering how confusing the current form is.
The Closing Disclosure must be received by the borrower three business days before the closing. If the form is mailed, couriered or emailed, the lender must allow an extra three business days on top of that. This means that the closing can't occur for at least six business days after the lender sends out the completed Closing Disclosure. This is a massive change from the way it is now, when some of the information is still being filled in on the closing day, sometimes even while the parties are sitting at the closing table.
The biggest issue I have with these new forms is that they significantly downplay the importance of getting owner's title insurance policies, which is money well spent. I can't think of any situation in which not getting this very important coverage would be a good idea. And I've seen many instances in which not having title insurance costs a buyer the home.
What do buyers and sellers need to do?
Closing agents - used to finalizing the process at the last minute to accomplish everyone's rush to close - now will need to get the final closing information to the mortgage lender at least 10 days before the closing date so that the lender can complete the Closing Disclosure in time to get it out six days before the scheduled closing. Realistically, to accomplish this, buyers and sellers will need to add three to four weeks to their closing timelines.
To make matters even more confusing, all of the standard purchase contract forms have been recently changed to address the new rules. That's causing real estate professionals to learn the new forms. Be sure your real estate agents and others on your team are aware of the new information and have been trained on how to deal with it. Fortunately, the industry seems ready for this change, and there is plenty of training available for those in the business.
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A: The large majority of lenders follow Fannie Mae guidelines when qualifying potential borrowers for new loans. When you closed on your short sale, you were given valid information that under the right conditions you could get a new loan two years after completing the deal.
Unfortunately, a couple of months ago Fannie Mae changed its guidelines so that there now is a four-year exclusion period before a buyer can qualify for a loan after a short sale. The guidelines do provide for a two-year period under extenuating circumstances, which are a sudden, drastic and prolonged drop in income that left the borrower with no other reasonable option but to default on the mortgage. In reality, it is extremely difficult to get this exception.
The good news is, not all lenders follow the Fannie Mae guidelines. Credit unions and community banks often will look past your credit score and other arbitrary criteria and evaluate your overall situation. They'll take into account factors such as income, savings, job history and whether the short sale was an isolated event or caused by circumstances outside of your control. In all likelihood, you will need to apply at multiple lenders and jump through hoops, but I have seen many borrowers get mortgages this way.