Changes designed to make it easier for a borrower to understand the cost of getting a mortgage loan have gone into effect, after a two-month postponement intended to get real estate agents and lenders up to speed.
Introduced Saturday by the Consumer Financial Protection Bureau, the "Know Before You Owe" mortgage-disclosure rule replaces four disclosure forms with two new ones - the Loan Estimate and the Closing Disclosure.
According to CFPB, the Loan Estimate makes it easier to compare offers from multiple mortgage lenders. The Closing Disclosure gives a borrower three business days to review the document and ask questions before closing on a mortgage.
Many real estate agents and mortgage lenders still anticipate delays at closings, which typically occur 30 to 90 days after an agreement of sale.
For the next few months, "sales will be normal," said Bob Acuff, broker-owner of Re/Max Services in Blue Bell, "but a percentage will get gummed up from inexperienced agents and mortgage brokers and by buyers who don't get preapproved for a home loan."
Kevin Gillen, chief economist for Meyers Research and senior research fellow at Drexel University's Lindy Institute for Urban Innovation, said he sees benefits in the changes, mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2009, but also drawbacks.
"Forcing your bank to disclose the comparable mortgage lending terms of its competitors may improve information symmetry for the consumer," Gillen said. "[Yet] it will likely come at the price of a longer time for approval, plus an overall higher cost of mortgage credit for the borrower."
Few home buyers comparison shop for mortgages, real estate agents say. And unless a closing document is in a borrower's hands at least three days before a scheduled closing, settlement on a property could be delayed.
In addition, said Bankrate.com mortgage analyst Holden Lewis, "there can't be any last-minute substantive changes in a loan, because any major changes require issuing a new Closing Disclosure and a three-day waiting period."
Christopher J. Artur, of Artur Realty in Mayfair, said: "I don't know how anyone is going to sell their home and settle on a new one in the same day with the three-day rule. It will be stress to the max for all involved [and] will weed out people from the industry."
The new closing form is five pages long and replaces the HUD-1 Good Faith Estimate and the Truth in Lending disclosure. Previously, a borrower might not have seen the HUD-1 Good Faith Estimate until the day of closing.
The new rules are all about disclosure and accuracy, said Jerome Scarpello, president of Leo Mortgage Inc. in Ambler.
"As long as the estimates are accurate - and don't change - things will be fine, Scarpello said. "If there are changes to the transaction, the buyer, seller, Realtor, and lender need to understand the law and understand the consequences."
Lewis also suggests that with the possibility of delayed closings, borrowers would be better served by rate locks of 45 or 60 days, as opposed to the 30-day rate lock common today.
Ruth Feldman, of Weichert Realtors/McCarthy Associates in Mount Airy, said allowing more time to get to settlement will be important - 60 to 75 days will probably be required, rather than 30 or 45.
"As long as everyone involved knows up front that the rules have changed and that in the beginning there will be a learning curve, I think we'll survive," Feldman said.
For more details: http://www.consumerfinance.gov/know-before-you-owe/