Will 60 Day Closings be the New Norm?
Things are about to get ugly in the world of closing real estate transactions. The Consumer Financial Protection Bureau (CFPB) is the government agency responsible for the Truth in Lending disclosure (TIL) and Real Estate Settlement Procedures Act (RESPA). They are recreating familiar disclosure documents to provide consumers better clarity and understanding of the numbers involved with their closing transactions.
We are all used to seeing two common forms at the closing table. The Good Faith Estimate and Truth in Lending disclosure are in place to protect the consumer by explaining all of the costs associated with their purchase or refinance. The problem with these good intentioned forms is that they are incredibly confusing. Confusing to the point that in many cases the person performing the closing has a hard time explaining them.
The new disclosures provide a simple, straight forward format that everyone can understand, especially the consumer for whom this is designed to protect.
Changes are regularly made at the closing table or just prior to closing. Adjustments in taxes, insurance and line items are very common. There are a lot of hands on these deals (Lenders, Mortgage Brokers, Title Companies, Real Estate Agents) and in many instances they haven’t worked together before, or at least the individuals representing these companies haven’t. So changes or corrections are made, deals get done and life goes on.
Starting October 1st.
The new amendments to the closing process include 2-three day grace periods. Once the closing disclosures are presented (can be emailed and e-signed) a three-day delivery period ensues. On the fourth day disclosures are hand delivered to all the parties in the transaction and another three day “waiting period” begins.
If documents are first delivered by the title company on a Monday, you can expect to close the following Monday. On a refinance the funds will not disburse until that Friday, that’s two weeks after the Lender clears the deal to close! If there’s a holiday in the mix you’re waiting up to nine days to close. Oh, and if you forget to cross a t or dot an i, we start the grace period all over again.
Sounds rough, but why would this extend the time to close to 60 days? “I get my deals closed in 15 days or less” boasted one investor in a recent title company presentation.
We should still get deals done within 30 days if everyone does their job correctly, right? Good luck. You see, lenders are going to be penalized for any violations. Unintentional mistakes in closing documents may have lenders facing a fine of up to $25,000 a day; intentional infractions can carry a maximum sentence of a million dollars!
Closing departments (for those unfamiliar) exist within the lender’s organization for the purpose of administering directions that the title companies follow to perform the closing. Often times these instructions need to be amended or corrected, and it’s not uncommon for minor mistakes to slip by the lender, title company, real estate agent and consumer.
This is where we have big problem. Some lenders are notoriously slow (and even sloppy) in processing the closing documents. Now that they have serious implications for not being perfect every time, can you guess how long these waiting periods will grow to be?
Better understanding of the numbers involved in a RE transaction.
More attention to detail by the lenders.
Consumer rate locks expiring at the expense of consumers who will pay more money to hold the desired rates (and rates are on the rise so this is a big problem).
Cash buyers have a much larger advantage in the marketplace (than they already do) given the added time sellers must wait for their funds.
Potential for broken contracts between buyers and sellers. Resale contracts typically call for a 30 day close.
The Good Faith Estimate (GFE) = New Loan Estimate.
HUD-1 = The Closing Disclosure.
And my personal favorite; Closings will now be referred to as “Consummations”.
I thought that was supposed to happen after the wedding not before you close on the house!
Now for the best part about the CFPB, the tax payers don’t pay a dime for all of this protection! In fact, its funded by the penalties it collects from lenders.
All of these new, federally mandated rules beg the question: is this better protection of the consumer a conflict of interest at the cost to the consumer? At any rate, there are going to be a lot of title company employees with less hair come October and it will be interesting to see how the CFPB polices these new rules.