On Aug. 1, the way lenders, Realtors and title companies work together will change.
If you’re not prepared for the upcoming changes, you will run the risk of delayed closings, lost trust with customers or other challenges brought by new federal regulations. Those statements might seem dramatic, but everything in the closing process – from the timing of the transaction to how information is shared and to what language we use when closing – will change later this year. Preparing now will ensure you remain relevant.
After the mortgage meltdown of 2005-08, the Dodd-Frank Act on financial reforms created the Consumer Financial Protection Bureau with the express purpose of protecting the consumer. One directive was to simplify and improve customer understanding of the closing process. The Dodd-Frank Act required the CFPB to combine separate, federally mandated forms used in the closing process – the Truth in Lending form, Good Faith Estimate form and U.S. Housing and Urban Development-1 form – into one easy-to-read document. The logic behind this consolidation is that one form is much easier for the consumer to understand.
The CFPB’s attempt to simplify the closing process is admirable; however, the changes are wreaking havoc on the lending and closing industries. The new forms require software updates, for title companies and banks to work together in lockstep, and for real estate contracts to take into effect the new closing timeline.
The days of the last-second closing with a lender involved are gone (sort of).
For title companies, the new regulations are welcome, as they should improve customer service dramatically. Many lenders procrastinate until the last second before closing.
The CFPB recognized this last-second closing push and determined consumers did not have enough time to review relevant documents and ask educated questions.
To fix this issue, the CFPB proposed a three-day seasoning period before closing. However, in the world of government math, three days really means seven days. This is a critical point, and one all parties to the transaction should understand. Let’s add it up.
The CFPB mandates three days for consumers to review their loan information and mandates forms must be delivered to the consumer. Generally, most lenders will mail forms for security and consistency. If mail is used, then the government allows three days for delivery. It takes another day for the lender, Realtor and title company to agree on final forms.
Lenders, Realtors and title companies will be scrambling to finalize closing documents. The industry will move to preclose seven days before the actual closing. This new process, while more cumbersome, will be welcome as the final presentation of the documents will be much more organized. The seven-day closing rule is critical to remember when completing real estate contracts and scheduling closings.
This may seem a bit comical, but the CFPB is trying to change the way we talk about our business, too.
• Closing is now called consummation.
• Lender is now called creditor.
• Customer is called consumer.
• The HUD form is now closing disclosure.
Many steps can be taken to prepare for these new adjustments. First and foremost, educate yourself, your staff and your customers. The more you know about the new regulations, the better prepared and confident you will appear to be with your consumer.
Next, train your staff and ensure they understand the process will change on Aug. 1, and that they are prepared for the changes. Ensuring your team as a whole is ready will prevent unnecessary delays or embarrassing oversights.
Finally, partner with vendors that understand the upcoming changes. Avoid working with vendor partners that do not have knowledge or seem to think the changes are not that big of a deal. All of the rules are changing this August, and we need to be prepared.
Patrick Curry is the CEO and president of Waco Title Co., which operates 17 offices from Springfield to Little Rock, Ark. He can be reached at pcurry@wacotitle.com.[[In-content Ad]]
