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‘Know Before You Owe’ mortgage disclosure rules in effect

Carol Stewart

Carol Stewart

By TED CARTER 

A new regulation designed to make home mortgages less complicated for borrowers and give them more time to study closing documents went into effect Oct 3.

The tradeoff, however, is that home purchases that typically closed in 30 to 45 days can now take up to 60 days, real estate professionals say.

What’s more, the “Know Before You Owe” disclosure rule issued by the U.S. Consumer Financial Protection Bureau restricts last-minute tinkering with documents at the closing table.

The rule streamlines four overlapping disclosure forms into two forms – the Loan Estimate and Closing Disclosure – and gives borrowers three business days ahead of closing to study the Closing Disclosure. The form the disclosure document replaces – the HUD-1 Settlement Statement – had been required to be in the hands of borrowers 24 hours ahead of closing, if the borrower asked for it.

While taking longer to close may frustrate all involved in a home sale, especially real estate agents, it will help to avoid surprises at the closing table, said Carol Stewart, president of the Central Mississippi Realtors Association and Realtor-broker at Crye-Leike Real Estate Services in Madison.

“Any changes” at closing that are other than routine require a resubmission, Stewart said, and added that provision is why real estate agents are encouraged to include automatic renewals into the closing agreement.

Excluded from the resubmission triggers are ordinary changes such as unexpected discoveries during a walk-through, changes to payments such as real estate commissions, taxes, prorated utilities, escrow payments and typographical errors.

Home inspections are a frequent cause of closing delays. With the additional time until closing, fewer home-inspection snags should occur, according to Stewart. “We have to get through the home inspection process before too much of the process is over,” she said. “If something is going to fall apart” it usually involves the home inspection.

Bankers and real estate professionals know the new rule as “TRID,” an acronym for TILA-RESPA Integrated Disclosures. TILA is the acronym for Truth in Lending Act and RESPA the acronym for the Real Estate Settlement Procedures Act .

Straying from TRID subjects lenders to regulatory penalties, though the Consumer Financial Protection Bureau has granted lenders a hold-harmless period of a few months. During that time, enforcement actions by the Consumer Financial Protection Bureau, or CFPB, will be diagnostic, rather than punitive, the Bureau says.

The American Land Title Association says it is grateful for the extra time. “We know from previous regulation implementations that there will be a learning curve and unforeseen issues once the new forms are used in real homebuyer transactions,” the association said in a prepared statement.

The Bureau says in making its compliance reviews, it will consider the lender’s implementation plan, including actions taken to update policies, procedures and staff training. How the institution handled early technical problems or other implementation challenges will also be considered, the CFPB says.

“Examiners will expect supervised entities to make good faith efforts to comply with the rule’s requirements in a timely manner,” the agency said in an Oct. 2 notice.

Extra time or not, the regulation has caused anxiety among lenders who see it as one more thing that can trip them up, according to Mauro Harto, mortgage lending director for Gulfport-based Hancock-Whitney Bank.

Implementation has already been delayed once, having been moved from Aug. 1 to Oct. 3. “Lenders and the government couldn’t get ready for it in time,” said Harto, who does not include Hancock-Whitney among banks fretting over the new regulations.

It has shifted workers around to accommodate the changes and worked with the third parties in mortgages closing to ensure everyone knows what is expected of them, Harto said.

Essentially, TRID combines a pair of longstanding regulations and seeks to make information clearer to the borrower before closing. “This helps give the consumer time to mull over the numbers and make sure they are as they were detailed in the beginning,” the Hancock-Whitney mortgage director said in an interview the day before the new rule went into effect.

“The loan estimate needs to match that closing statement pretty tightly,” he said.

In the residential home-buying boom that ultimately led to a real estate bust, the closing process moved “fast and furious” and borrowers often got estimates that weren’t even close to the closing costs, Harto added.

Eventually “lenders will find it is a good thing for us,” Harto said of TRID and the mandates it puts on participants in a real estate transaction.

For one, all forms related to the transaction will be uniform nationwide, with everyone putting the same type figures in the same boxes, he said. “This can lessen the chance of legal problems down the road. Whenever you can get more clarity and consistency, you are going to be better off.”

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