As if getting a home loan wasn’t complicated enough these days, the Consumer Financial Protection Bureau (CFPB) has implemented a whole new set of guidelines for the mortgage industry. The CFPB was established by Congress to protect you, the consumer, in your dealings with financial institutions.
On August 1, 2015, the new guidelines go into effect. It will not affect transactions that are in progress on this date, only those going into escrow from this date. The purpose of this blog is not to explain the details of the changes (this is for your lender to do)…rather it is to realistically set your expectations for the process so you will be prepared and happy at closing time.
The primary goal here is to get across to both buyers and sellers that your transaction will take longer, particularly if it occurs during the first few months of the changes. How much longer you ask? It is likely to take 1 to 2 more weeks longer, so a typical 45 day close in Hawaii may soon take 60 days. This is necessary to know for planning purposes, especially if you are in the process of relocating here, or if you need to give notice to your landlord or your tenant.
What Are the Major Changes?
The major changes from the CFPB are to simplify the disclosures to the consumer. Where there used to be a Good Faith Estimate (GFE — lists the basic info about the terms of the proposed loan) and Truth-In-Lending (TIL — the true cost of making and closing the loan) statement, there will now be one document called a Loan Estimate. There are specific timelines that you are to be given the documents.
On the closing end, where there used to be a HUD-1 and Final TIL, it will be replaced by the Closing Disclosure. Here’s where it gets tricky because if any changes need to be made with the numbers for whatever reason, most times that will cause a significant delay in the closing date. The main goal of the new guidelines was to give the consumer adequate time to review these closing documents, whereas in the past, many times the buyers saw those documents for the first time at the signing appointment.
Regarding the timeline, if the Closing Disclosure is hand delivered to the buyer, there needs to be a 3 day wait/review period before the consummation or signing date, where the buyer will be obligated for the loan. If instead this disclosure is mailed, say in the case of an out-of-town buyer, there is an additional 3 day wait period, or a 6 day total wait period prior to signing (not including Sundays and certain Federal holidays). No doubt initially when the changes take place there will be added delays while everyone involved with the closing learns first-hand about the process.
Yes, it’s still a great time to buy real estate, especially in Hawaii…now you just have to really be on “Hawaiian Time” in the end. For more information about the CFPB changes, contact your favorite loan officer or me.