eClosings, CFPB, and what you need to know about mortgage financing changes

One of the outcomes from the 2010 Dodd-Frank legislation was the creation of the Consumer Finance Protection Bureau – CFPB – and along with that sweeping changes how consumers shop for and purchase money to finance a new home.

I did write “purchase money” where in this context it’s more often written “obtain a mortgage” but that phrase doesn’t describe the mortgage transaction well. Call it what it is. Obtaining a mortgage is nothing more than buying money and when you buy something you usually know quite easily what it costs because there is a price tag. Obtaining a mortgage comes with all kinds of fees and the way they are handled and explained in piles of paper and jargon that most are not familiar with easily obfuscates the true cost.

To be fair and clear, the money you pay beyond the principal amount does not all go to the lender. Indeed the lion’s share does especially in the early years of the loan, but since mortgages are secured by real property there is a lot more involved such as but not limited to professional evaluation of the asset to protect the lender’s investment, title insurance for the lender and the homeowner (usually at state promulgated rates), recording fees and taxes imposed by the state and/or county where the property is located, and finally other fees the lender may charge beyond the interest paid on the principal amount.

So as you can see it gets complicated. Enter Dodd-Frank and the CFPB. The CFPB created new disclosure rules, new “simplified forms” (gone for good is the HUD-1 statement), and consistent language. The obligation to execute timely disclosure is imposed upon the lender at application time and prior to closing, at least three days prior to closing.

IT IS IMPORTANT TO NOTE that the timing requirements for disclosure prior to closing CAN AND WILL force a delay in closing if the lender believes they must re-disclose due to what could amount to be a minor change. The expectation is that lenders will err on the cautious side and decide to re-disclose even if it may not be necessary. Think about that if you are the seller with a moving van full of your belongings and/or you are in need of the funds from your closing for your next purchase which may be on the same day! Everyone must be aware of these potential pitfalls particularly as it pertains to your closing. This will soon become the new normal for all financed real estate purchases.

WHEN: Originally scheduled to take effect August 1, 2015, it is now delayed to and will affect all mortgage applications made on or after October 3, 2015.

We’re all familiar now with e-Sign/e-Signatures. They’re almost commonplace. eClosing will be next. The CFPB found that when used in test cases, eClosings improved the disclosure, lending process, and closing process. Further, the big lenders FANNIE and FREDDIE seem to be comfortable with the technology. eClosings may become a requirement at some point.

Make sure you are working with a team (REALTOR and lender) that understands the process and ramification of this new legislations and how it will affect you as a buyer or seller.

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