New Lending Rules to Protect Home Buyers

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What are these new lending rules and how does it impact our Diva Dwellers and Diva Dwellings? Remember that good old real estate market crash? One of the main reasons of the crash was a result of buyers getting loans they didn’t understand or could really afford by predatory lenders. As a result of this practice we are FINALLY getting more buyer protections enacted. THANK GOODNESS! The new rules allows the buyer more time to actually make sure you are getting the best loan in this real estate market that best fits their needs.

The new rules are part of the Dodd/Frank Act being implemented by the Consumer Financial Protection Bureau called TRID.

What are the big changes?

Closing Timeline Changes: Closing will be extended by at least THREE days as lenders, escrow, and buyer coordinate their review process.

Mortgage Insurance Removal: After 7 years our buyers can ask for the mortgage insurance to be removed from their loan. But they have to initiate the process. Still unknown on how they are going to do this process. Should be interesting in 2017 when the 2010 First Time Tax Credit Babies start asking for the Mortgage Insurance to be removed.

New Forms

New Loan Estimate Form: Finally standardized forms between all lenders for buyers to price shop their loans. It replaces the Good Faith Estimate. Unfortunately, buyers only receive a Loan Estimate Form once they have a property address and a contract date. Meaning you have won a property in this hot market. This is great if you are in a normal market. But in this fast paced market you typically have to shop for your loan before you make an offer. Team Diva is still here for you to help analyze a good lender from a bad lender. A bad lender will promise you the world, low rates, and a unicorn. BUT these unicorns — are a MULE with a glued on sparkly horn. Download the new form here

New Closing Disclosure Form (old HUD 1): Only for residential mortgages (not cash or commercial transaction). The New Closing Disclosure Form is super easy to read and actually explains all of the fees. Whew! The old closing statement was super confusing even for the most experienced of Real Estate pros. Download the new Closing Disclosure Form HERE 

The Buyer Gets Three Days to Review the New Closing Disclosure Form – You mean you actually get to look at your closing costs, loan commitments, and ask questions now? What? Must be a miracle. The Closing Disclosure Form must be released and signed by the buyers three days before closing. The three days are Monday – Saturday. Does not include Sundays or Holidays. For instance a Closing Disclosure released on Thursday at 5pm but not signed until Friday at 9am means that our buyer cannot sign their final loan documents until Tuesday at 9am. Make sense? 

Every lender is going to have a different process on getting the signatures for the three-day review period. The unknowns are when the three-day clock starts running. Upon delivery back to the lender? Or Receipt by the buyer? Or Signatures of the Buyer and delivery back to the lender? Expect delays in closing if signatures/delivery/receipt does not happen by all parties.  Our team is ready for the unknowns on this baby!

Will the transition be bumpy? It could be, but not insurmountable, and for those of us who have been in the real estate industry long enough, we know that we are trained to anticipate and deal with the bumps. One bump at a time until our new normal is second nature. Kathy O’Brien, President of Escrow of Professionals of Washington

Please note: There is new section on the Closing Disclosure Form called Services Borrower Did Shop For (title and escrow). It makes it look like the buyer has a choice to shop for Title and Escrow. But as you know in this fast market the seller’s brokers choose title and escrow. We need to make it REALLY clear that this is going to show up on their final forms but as part of winning the house they really cannot shop around. Luckily we live in WA State and costs are about the same between majority Title and Escrow companies.

Impacts to Our Diva Dwellings: Today we are starting to receive the first inkling of delayed closings as a result of these changes. Big Banks are having issues implementing the new TRID rules. As a seller I would expect delays in closing for the next couple of months.

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Potential Issues

Every lender and escrow company is interpreting the new rules differently. Some will release the Closing Disclosure Form in advance of the final docs. And some will not. How they start the three-day clock is different for everyone. Local lenders are saying they can close in 25 days. My least favorite lenders (Online lenders and Big Banks) are saying closer to 30-45 days in a multiple offer situation.

Want More Information: What to Know About the New Mortgage Forms, The Wall Street Journal. September 30, 2015

And remember – yes these new rules are going to be a pain to implement but they are here to help PROTECT HOME BUYERS!