Dodd–Frank Wall Street Reform and Consumer Protection Act - How it Affects Home Buyers and Sellers

The Dodd–Frank Wall Street Reform and Consumer Protection Act was signed into law by President Obama in 2010 with new regulations affecting home mortgages scheduled to go into effect August 3, 2015 but later extended to October 3, 2015.  Since it's passage, there have been facts, rumors and myths swirling around the real estate industry which has left a lot of real estate agents confused or even mis-informed on the topic.  Unfortunately, if a buyer, or seller, is trusting an agent that does not understand the regulations brought forth under this act, their buyer client may be unable to meet their closing date obligations or their seller client may accept a financing contingent contract that is destined for failure from the begging.

At MORE, REALTORS® we have went to great lengths to make sure our real estate agents know the facts so that they can help their clients navigate their way through.  Below are some highlights of the Act that pertain to home buyers and sellers.

The New TRID...

• Before the Act, Federal law required lenders to provide two different disclosure forms to consumers applying for a mortgage:  The Good Faith Estimate (GFE) and the initial Truth-in-Lending disclosure (initial TIL).  Now, these two forms have been combined into a single form, the Loan Estimate. Like the prior two forms it replaced, the Loan Estimate form provides disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage loan for which they are applying for.  
• There were also two different forms required to be given to consumer at, or shortly before, closing on the loan: The HUD-1 and final Truth-in-Lending disclosure (final TIL and, together with the initial TIL, the Truth-in-Lending forms).  These two forms were also replaced by one form called the Closing Disclosure, which was designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction.
• The two new forms above are known as the "TRID" (TILA-RESPA Integrated Disclosure) forms.  

Timely disclosures...

• Under the new rules, the loan application process will be slowed somewhat, to allow for the dissemination of pertinent information to the home buyer along the way.  While the disclosures, along with the required allotted time to receive and review, may seem somewhat burdensome to the lenders and others involved, there is no reason the time to purchase a home should take as long as some fear.  While presently the typical time to close on the purchase of a home is about 6 weeks many professionals in our industry feel this will become 60 days minimum.  Granted, for borrowers that do not provide everything needed to their lender in a timely fashion, or for lenders that are ill-prepared for the change or sloppy in their work, the new disclosure requirements will most likely cause a delay in the closing.  However, for home buyers that have been properly educated on, and prepared for, the loan process by their buyers agent as well as loan officer and lenders that are prepared for the new compliance requirements, I think a closing time of less than 60 days is every realistic.

Timing and disclosure requirements:

• Within 3 business days of the loan application the lender must either give, or mail to, the borrower a Loan Estimate.  At the time of loan application, the lender is only permitted to charge the borrower for the cost of a credit report and nothing else.
• The borrower must give lender notice that he or she intends to proceed with the loan. However, the borrower cannot consummate the loan (become responsible for any costs associated with the loan) until 7 business days after receipt of the loan estimate (if lender gave it in person) or 7 business days after lender mailed it.  For purposes herein, business days would include all days except Sunday and holidays.
• Three business days prior to closing the borrower must receive the closing disclosure from lender which will show all final costs and exact balance due from buyer at closing.  In order to comply with this, the lender may hand the disclosure to borrower or put in mail 3 business days before the deadline for the buyer to receive (3 business days before closing) so, essentially, 6 business days before closing.

What triggers a delay in closing.. There are some things that could trigger the closing being delayed, such as:

• If the APR (annual percentage rate) increases by more than 1/8 of a percent for fixed-rate loans or 1/4 of a percent for adjustable loans.
• A prepayment penalty is added.
• The basic loan product changes, such as a switch from fixed rate to adjustable interest rate or to a loan with interest-only payments.
• If the actual charge for third-party services and recording fees being paid by the borrower exceed the estimated amount by more than 10% cumulative, based upon the total of all such charges then a new estimate will be needed which could result in the closing being delayed.

What should NOT delay your closing..

What your lender cannot do...

• Charge you more than the amount disclosed on the Loan Estimate under any circumstances, other than changed circumstances (see below), for charges considered "zero tolerance" charges by theCFPB, which include:
  • Fees paid to the lender, mortgage broker or an affiliate of either
  • Fees paid to an unaffiliated third party if the lender did not permit you to shop for a third party service provider for a settlement service.

Unless... The lender can make changes from he Loan Estimate if they are the result of a "changed circumstance" which the CFPB defines as:

• Changes that affect your eligibility for the terms for which you applied or the changes in the value of the home due to appraisal.
• You did not lock in the interest rate when the Loan Estimate was provided, and locking the rate causes the points or lender credits disclosed on the Loan Estimate to change.
•  You waited more than 10 business days after the Loan Estimate was provided to you to indicate an intent to proceed with the loan.

The above outline is a simple version of the process and assumes no changes along the way in terms of loan terms that would trigger a new estimate being required, or in sale terms that would require one.  As you can see, the disclosures and timing do slow the process, so there is less room for error, which will result in many closings no doubt taking 60 days from purchase, however, as I indicated before, it is still possible to get it done quicker.