Our industry is approaching a significant change designed to protect consumers from some of the elements that contributed to the 2007-2008 real estate collapse and general recession. Mortgage transactions – both purchase and refinance – originated after Oct. 3, 2015 will be subject to new regulations designed and enforced by the Consumer Financial Protection Bureau (CFPB).
Nearly 70 percent of Pacific Union’s 5,000-plus annual real estate transactions are financed by mortgages. Therefore, the CFPB rule changes will impact most of our buyers and sellers. After Oct. 3, the Good Faith Estimate, Truth in Lending, and HUD-1 disclosures will be replaced with a Loan Estimate (LE) and a Closing Disclosure (CD). These are brand-new forms that first-time homebuyers and sophisticated investors alike must review and sign if using a regulated mortgage product.
The practical impact appears in the event there is any change in the fees related to closing. We are somewhat accustomed to fee changes and modifications to the Good Faith Estimate and/or the final closing statement as part of the closing process. Variances of up to 10 percent were generally tolerated before a redisclosure was necessary. The new rules and regulations have zero tolerance for an error or changes in fees, credits, and so on.
After Oct. 3, borrowers will be notified if any fees, credits, or costs change via a new CD from the lender, and they will have a mandatory three business days to review them. Clearly this may have an impact on the timely closing of a real estate transaction.
These new CFPB rules and regulations are designed to protect the consumer, provide for full clarity in the LE, and achieve consistency between the original LE and the final CD. The fact that the rules and forms are changing means that all parties involved in a transaction have new processes to follow. Buyers and sellers will need to prepare for these new forms and be ready to relax stringent closing dates in the event that a redisclosure must be made. It is quite possible that, even with our finest intentions, the velocity of our closings may slow somewhat early in the fourth quarter.
We are conducting multiple training sessions for our real estate professionals to ensure that we continue to provide our clients with exceptional service. Please feel free to review all of the new CFPB rules and regulations with your escrow officer, lender, or Pacific Union real estate professional.
– Mark A. McLaughlin, CEO, Pacific Union