Posted on January 23, 2016 by TheWealthIncreaser.com
Learn About New Mortgage Lender Guidelines that Will Add More Protection for You When You Close on Your Next Home
Learn what you can do today—to ensure that your home purchase goes the right way…
Learn how to use “Know Before You Owe” to get a loan at a good—or the best rate…
The close of 2015 brought about not only the extension of certain tax breaks for homeowners, but also brought in new home loan protections for those who will obtain a loan when they purchase their home (and who is it that said the 114th Congress was a do nothing Congress).
On a more serious note, the new home loan guidelines and requirements will allow you to get a preview of what your closing document Truth In Lending Statement and (HUD-1) would look like 3 days before closing (giving you time to review and possibly do something about your loan prior to signing on the dotted line).
More than 300 members of Congress pushed Consumer Financial Protection Bureau (CFPB) Director Richard Cordray to delay enforcement of the rule until the end of 2015 and the Mortgage Bankers Association (MBA), a lender trade group, wanted that pushed out even further, until as late as February 2016.
A temporary legal safe harbor for lenders was implemented and will ensure the new requirements are implemented in an orderly manner and in a manner where you (consumers) are not confused or, worse yet, impaired in your ability to purchase a home or refinance a loan—and that temporary safe harbor helped many who were in the process of closing during the latter half of 2015.
Prior to these badly needed home loan regulations, borrowers (you) received the paperwork on the day of closing and for the most part you had to live with the terms and conditions—unless you pulled out on the day of closing—where you faced potentially other problems such as loss of earnest money or other penalties for violating the contract agreement.
The new guidelines, although not perfect—gives you or any home purchaser (who obtains a lender backed mortgage) or homeowner (if refinancing) additional review time and possibly allow you a few days to correct what you don’t like about the loan terms—up front.
Specifically the new loan requirements:
1) state that banks are required to give you more time to review loan documents
2) state that you must be given the new combined Loan Estimate (LE) with all the charges, fees and line items three days before the closing, rather than at the closing on the HUD-1 form, which itself will disappear
3) state that any change in the loan estimate that’s more than one-eighth of a percent (12.5 basis points) in the three-day period for a fixed-rate loan or a quarter of a percent (25 basis points) for a variable rate loan — or changes or additions in other fees, such as an addition of a prepayment penalty, requires an entirely new disclosure period.
4) state that a decrease in the interest rate or fees won’t cause a delay
The above changes or adjustments should give you (and your attorney or real estate agent) more peace of mind when loan shopping and ultimately closing on your home loan.
Although rare, it is not uncommon for lenders or closing attorneys to make mistakes on the closing documents that will often cost you more. As someone who has been in the residential housing industry for over 20 years I have found that it is rare—but it has occurred on over a handful of closings that my office was involved in.
Having said that, a careful eye can now catch what may be wrong on the closing document before the closing actually occurs—which is good news for you.
In addition, if there is a downward movement in the interest rate during the three day period the closing can continue, however if there is an upward tick in the interest rate (1/8 of a percent on a fixed rate loan) the lender must redo the terms and provide you an entirely new disclosure period.
After being delayed all summer, that new home loan rule from the Consumer Finance Protection Bureau (CFPB) went into effect on October 3rd 2015 that required banks to give consumers (you) more time to review loan documents.
At that time lenders were warning that the new rules could slow down the time needed to close by at least a week. Even now (January 2016), there are many lenders who have not adequately adjusted to the new requirements.
As of October 3rd 2015, the federal government requires that loan disclosure documents must combine the information required in the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA).
Under the new rule change, known as the “Know Before You Owe” rule, or the TILA-RESPA Integrated Disclosure (TRID) regulation, consumers must be given the new combined Loan Estimate (LE) with all the charges, fees and line items three days before the closing, rather than at the closing on the HUD-1 form, which itself will disappear.
By “giving you three business days to review your closing disclosure before you sign on the dotted line—“Know Before You Owe” is designed to protect you from surprises at the closing table,” the CFBP said in a press release announcing the rule back in 2015.
The rule was supposed to go into effect in the Summer of 2015 but was delayed after an outcry from lenders and members of Congress who said it would hurt closing times at the height of the real estate sales season.
The above CFPB’s change comes as a result of years of documented abuses that occurred during the real estate boom in the past decade, as many first-time buyers came to closing unaware of the vast array of documents they’d be signing, which made it all too easy for unscrupulous lenders, brokers or title companies to stick hidden fees in the closing documents or change the loan rates at the last minute.
Many of the industry abuses during that period spurred the creation of this website and a number of discussions about mortgage loan abuses and how to prevent them on our companion web sites.
The goal of the new changes according to the CFPB is to give you time to consult with your lawyer or housing counselor and ask all the questions you might have about the terms of your mortgage. That is definitely a start in the right direction as it can only help consumers in the future if used appropriately by them.
The (Consumer Finance Protection Board) CFPB was created as an independent government agency in 2011 in response to the financial crisis and Great Recession of 2008.
Even though this legislation can be beneficial to you, from my perspective a major question to ask yourself—and answer appropriately is—what could happen when delays in closings that aren’t my (borrower) fault that might push the loan past an agreed-to 30-day rate lock for loan interest rates?
As a borrowers you should look for rate locks that are good for 45 days or up to 60 days, in case the home can’t close in 30 days or less—or negotiate with the lender (good luck) to have them absorb the difference.
If the lender that you choose is not up to date on the new requirements and don’t have the appropriate software in place to handle the new requirements be sure to have your real estate agent or attorney include in the special stipulations a clause that allows you to extend the closing (penalty free) if the lender delays the closing due to not being prepared for the new regulations.
In addition, your inability to obtain a loan at the prevailing (market rate) through no fault of your own should also be included in the contract terms so that you do not lose your earnest money due to your inability to obtain a loan through no fault of your own.
If a delay occurs because the lender wasn’t ready to close because of the new TRID requirements, ask the lender to absorb the cost or a portion of the cost that is needed to extend the rate lock.
Many lenders will try to push the cost over to you—so be ready for all scenarios up front and make your decision on how you want to approach your closing in a more proactive manner.
Keep in mind that many lenders will require you to re-lock and by not doing so you could potentially pay higher interest rates if the closing occurs outside the rate-lock period. If you decide to relock—many lenders will charge you an additional fee.
Companies that are now well prepared for TRID (new home loan and refinance regulations) are now in position to take market share from those lenders who are less prepared, and they are also in a better position to help borrowers (you) close on time.
If you are at this time applying for a home loan—you should ask your loan officers whether they’re prepared for TRID and if not, consider switching to a better-prepared lender so that you can close on time.
Most lending companies were aware that these new regulations were coming years ago—and if you are now dealing with a company that is ill-prepared at this late date—they should expect that you would go elsewhere to obtain a home loan.
By doing your homework upfront prior to obtaining your home loan or refinancing—you are now well ahead of most consumers who are now seeking a home loan or refinance—and you are now in position to enhance your odds of closing in the time frame that you desire.
Your thorough understanding of the above “new” home loan guidelines puts you well ahead of most consumers and many who now operate within the financial industry.
By acting in an intelligent, consistent and proactive manner you are positioning yourself and your family for a prosperous and productive future.
Use the above discussion to your and your family’s best advantage and make your home ownership experience as rewarding as possible!
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About This Article:
The above article was written by Thomas (TJ) Underwood on January 23, 2016. Thomas (TJ) Underwood is a licensed real estate broker in the state of Georgia and is the writer behind The Wealth Increaser, Home Buyer 411, Home Seller 411, The 3 Step Structured Approach to Managing Your Finances, Managing & Improving Your Credit & Finances for this MILLENNIUM and CREDIT & FINANCE IMPROVEMENT MADE EASY—FREE GUIDE.
He is the creator of TheWealthIncreaser.com where he regularly blogs about helping consumers improve their credit, finance and real estate pursuits in an intelligent, consistent and proactive manner. He’s always looking for ways to make intelligent finance improvement happen for those who “sincerely desire” success in their future.
You can contact him from a number of sources but the most direct way is to contact him through Realty 1 Strategic Advisors Website. You can also get highly relevant tips on “living your life more abundantly” and possibly earn revenue at the same time by linking to TheWealthIncreaser.com.