New mortgage rules that take effect Saturday aim to help borrowers shop for the best deal. But some fear confusion and delays as lenders, Realtors and closing agents adapt to the changes.
Under the federal “Know Before You Owe” guidelines, gone are the good-faith estimate and the so-called HUD-1 settlement statement, the documents that spell out the mortgage rate and fees for appraisals, title insurance and other costs. Those standbys will be replaced by new documents known as the “loan estimate” and the “closing disclosure.”
“It’s one of the biggest changes I’ve ever seen,” said Jim Flood, regional manager for Supreme Lending in Delray Beach. “Realtors and mortgage brokers and closing agents have been doing the same thing over and over and over for 30 years.”
The new rules are part of the Dodd-Frank financial reform passed by Congress in the aftermath of the Great Recession. Starting Saturday, the federal Consumer Financial Protection Bureau will require a lender to provide a closing disclosure to the borrower three business days before the loan closes.
“We’ve heard that closing is often rushed, not allowing enough time to review before signing on the dotted line,” the agency said on its website. “For consumers who apply for most mortgages on or after [Saturday], the stress of shopping for a mortgage will be reduced.”
The new forms will help borrowers compare offers from competing lenders, said Bob Kelly, a mortgage executive at Bank of America.
“You’re going to get documents that look identical between the lenders,” Kelly said. “It’s very clear from a consumer’s perspective what to expect.”
The new forms make it easier to analyze the differences between a fixed-rate loan and an adjustable-rate mortgage, said Holden Lewis, mortgage analyst at Bankrate.com in Palm Beach Gardens.
“Getting a mortgage is going to be more transparent, and there’s going to be less information asymmetry,” Lewis said. “It’s just going to be a lot easier to understand and to compare different loan offers.”
Others aren’t sure that the new forms will be any plainer to the typical consumer.
“What used to be a three-page HUD document is now going to be a five-page closing disclosure,” said Randy Bianchi of Paradise Properties in West Palm Beach. “I don’t think it’s going to be any easier.”
Federal regulators expect less stress for consumers, but there’s plenty of heartburn for the lenders, real estate agents and closing agents as they learn the new rules.
The timing of various steps in the mortgage process will change, and last-minute adjustments to a deal could cause the three-day window to reset. That’s why Bank of America’s Kelly said that, in addition to a walk-through of the property the night before closing, buyers should tour the property five or six days before closing.
At Supreme Mortgage, loan officers have been taking tests to make sure they understand the arcana of the new rules.
“We’re on training calls four out of five days a week,” Flood said. “We’re going over and over the changes. We want to get out in front of it.”
Closings might take longer. Many expect the typical mortgage process to expand from 30 days to 45 days. For a homebuyer who needs to sell one house to buy another, the new rules could disrupt those plans.
“If the first deal doesn’t close on time, the second one isn’t going to close on time,” Kelly said.
While Kelly said Bank of America has taken pains to teach Realtors and closing agents about the new rules, Realtors say only the most attentive agents are prepared.
“The industry is not ready for this,” said Ben Schachter, president of Signature Real Estate Cos. in Boca Raton. “I don’t think many of the agents have been fully educated or are aware.”
The rules don’t apply to cash deals, which make up a large chunk of transactions in Palm Beach County. Lenders and Realtors say they expect any hiccups to subside as the lending industry digests the changes.
“People will just have to be patient,” Bianchi said. “Until we get to January or February and we’ve worked through some of the kinks, it’s going to be rough.”