But is what’s good for the consumer necessarily an easy thing for the mortgage industry to actually implement?
While the new mortgage disclosures will be easier for consumers to read and understand compared to the jargon of today, for the many players in the mortgage industry that come together to make-up a successfully closed loan, the regulatory changes are the most dynamic that have been seen in about 20 years!
An excellent article in the New York Times on April 10, 2015, ‘Simplifying Mortgage Disclosure Forms‘ by Lisa Prevost, clearly explains what the new mortgage landscape will look like and what it will mean for those involved on both sides of the transaction.
Mortgage terms will be simpler for home buyers to read and understand come Aug. 1. Borrowers will receive one disclosure, the Loan Estimate, detailing the terms and projected closing costs shortly after application, and another, the Closing Disclosure, just before signing off.
The new forms, mandated by the Consumer Financial Protection Bureau, will likely seem to consumers a relatively minor, if welcome, change. But for the lending industry, and all the other parties involved with mortgage transactions, preparing for the switch is a massive undertaking.
The new forms are part of a nearly 1,900-page rule created by the bureau to fulfill its obligation under the Dodd-Frank Act to integrate and simplify the four different mortgage disclosures currently required under the Truth in Lending and Real Estate Settlement Procedures acts. Commonly referred to as the TILA-RESPA rule, it became final back in November 2013. With the Aug. 1 effective date looming, the lending industry is still scrambling to comply.
“I think it was an ‘out of sight, out of mind’ thing, and maybe people were hoping it would get delayed,” said Grace Currid, a senior vice president and chief credit officer for HomeBridge Financial Services, a nonbank lender. “Now the reality of the change is hitting the lending industry and everyone is just starting to understand the magnitude.”
The rule doesn’t just streamline the disclosure forms, making the features and costs of the mortgage more plain. It rewrites long-established rules about the timing and method of disclosing, what triggers a disclosure requirement, and under what conditions you might need to re-disclose, said Jonathan Corr, the chief executive of Ellie Mae, a provider of loan origination and other software systems for the mortgage industry.
“From a practitioner standpoint, it’s a massive change,” Mr. Corr said. “It’s definitely the biggest regulatory change in the last 20 years.”
One significant change is a requirement that consumers have the Closing Disclosure in their hands three days before they sign off on the loan. Getting those disclosures to consumers on time, and documenting that delivery as proof of compliance, means more lenders will have to adopt technology that enables them to deliver the material electronically, said Kelly Purcell, the executive vice president for global sales and marketing at eSignSystems, a DocMagic company, in Arizona.
It also means that the lender, title company, real estate broker, insurance agent and anyone else involved in the transaction will have to come together a lot sooner to prepare that closing statement so the customer has it in time, Ms. Currid said.
Likewise, at the front end of the transaction, lenders will be required to provide consumers with the Loan Estimate no more than three business days after they submit a loan application. That presents a challenge for title and settlement service professionals, who must be prepared to give lenders “the best information possible in a very timely manner,” said Diane Evans, the president of the American Land Title Association.
Ellie Mae, which is releasing a TILA-RESPA mortgage software solution this month, has conducted education programs on the effect of the rule for the last year. For its roughly 1,600 lender clients, it is not just a question of adopting new technology, but of retraining their employees, as well as their real estate partners, Mr. Corr said.
As Ms. Currid said: “You’re basically taking the workflow that everyone’s been using for years and you’re shifting it around. Change can be painful even when change is good.”
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Michael Haltman, President of Hallmark Abstract Service, New York.
HAS is a provider of title insurance in New York State for residential and commercial real estate transactions.
And, for anyone either buying a property or refinancing, remember that although your attorney will likely recommend a title insurance provider you always have the right to choose your own (click here to learn more)!
If you have any questions you can reach Michael by email at mhaltman@hallmarkabstractllc.com.
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