CFPB Changing How Homes are Bought and Sold

Beginning August 1st, 2015  ( see the proposed date change below ) the CFPB ( Consumer Financial Protection Bureau ) will mandate a new closing process known as TRID which is designed to increase transparency for consumers. Basically, the CFPB wants consumers to “know before they owe!”

TRID stands for Tila-Respa Integrated Disclosure.

UPDATE: on June 17th, the CFPB issued a statement that said:

The CFPB will be issuing a proposed amendment to delay the effective date of the Know Before You Owe rule until October 1, 2015. We made this decision to correct an administrative error that we just discovered in meeting the requirements under federal law, which would have delayed the effective date of the rule by two weeks. We further believe that the additional time included in the proposed effective date would better accommodate the interests of the many consumers and providers whose families will be busy with the transition to the new school year at that time.

There will be public input about the proposed date change and a final decision should be available, soon. I think it is pretty safe to say that the date will be changed. Most people seem to like the idea of the extension!

Another Update from Jim Sexton. Jim is out 2015 president of the Arizona Association of REALTORS. Jim discusses TILA-RESPA revisions and lets members know more about the upcoming changes to the closing process.

Soon, the  HUD-1 settlement form, the Good Faith Estimate (GFE), and the TILA or Truth in Lending Act disclosure form will go away and will be replaced by two new forms: the Closing Disclosure and the Loan Estimate.

Here in Arizona, and I believe all across the country, we are being told to add additional time to close on a home if the buyer is financing the purchase. Buyers and sellers need to be aware of these changes!

For reference, here’s a link to what the new CD or Closing Disclosure and the new LE or Loan Estimate will look like.

To start, the Loan Estimate will be given to the buyer no later that 3 days after the loan application is completed. The buyer MUST sign and return an Intend to Proceed form within 10 days of receipt of the Loan Estimate. This form is a disclosure made between the borrower and the lender.

The Closing Disclosure will be given to the buyer a minimum of 3 days before signing of the documents. Closing will not occur prior to this 3 day window.  The LE and CD need to match as close as possible within current tolerances in order for the closing not to be delayed. That’s a big part of what we need to know about the changes.

Remember, the delivery of the Closing Disclosure is critical. The three day waiting period is mandatory so don’t think you can have it waived or changed. The lenders MUST let all parties know when the CD has been delivered to the buyer!

The TILA and RESPA forms have been around for a *really* long time. They are confusing documents for many people. Part of the thought behind the CFPB changing the closing process is to make it easier for a buyer to understand the financing process.

On the plus side of the new CFPB changes, loan documents should be ready when the Closing Disclosure is issued. This means we will have loan documents delivered to escrow three days prior to the closing date on a regular basis. That’s going to be a good thing!

There are three events that can require a new closing disclosure and new waiting period. ie: Cause a delay in the closing of the loan.

1. The addition of pre-payment penalty.

2. The changing of the loan product, such as moving from a fixed to variable rate, etc.

3. If the APR goes up by more than 1/8% on a fixed rate loan or 1/4% on a variable rate loan.

Really, none of those three things should be happening anyway, so we hope delays in the process will be minimal.

Under the new rules, The Combined Closing Statement ( or  CCS ) will replace the HUD-1 Settlement Statement. Upon close of escrow, the file will be disbursed based on the Combined Closing Statement. This is where you will see all of the final numbers for net proceeds, cash to close, final prorations, etc.

The clarity of the matching CD and LE will be a benefit to people who buy and sell homes.

NAR video and initial response: <<— That is a link to an article from the National Association of REALTORS that explains their initial take on the new changes. There is also a video of Ken Trepeta, from NAR’s Government Affairs department. Take a look to see and hear this information straight from NAR! They also ask us to watch for additional updates at the RESPA page on Realtor.org.

NAR Seeks Grace Period for New Closing Process: NAR President Chris Polychron recently told the U.S. House Financial Services Committee that a grace period is needed to give lenders, title agents, real estate professionals, and buyers and sellers time to get used to new closing procedures. Still no word if this grace period will be granted, but the smart money says to start paying attention to all of the new CFPB changes now and don’t take any chances.

** Update: June 3rd, 2015 – CFPB to grant grace period on TRID enforcement.

Make SURE you are working with a REALTOR, a lender and an escrow company that is VERY familiar with this process. THIS will be VERY important. PLEASE make sure that your REALTOR, lender and escrow officer communicate well, understand this process and are willing and able to work with ALL parties of the transaction. Seriously, communication will be key! Especially as we all adjust to the new requirements.

A very brief summary of the new CFPB process looks like this: An offer is accepted, the lender tells us when Loan Estimate was delivered to buyer, when the Intent To Proceed was given, and when a Closing Disclosure was delivered so that all parties know when the first available signing / closing day can occur. Of course, this scenario is in addition to all of the other moving parts coming together for completion of the sale of a home.

A couple of other things to think about with the new CFPB changes are:

1. Sellers need to be made aware that road blocks can occur and that delays may happen.

2. Trying to do a simultaneous closing is going to be a nightmare in the beginning.

Prepared Remarks of CFPB Director Richard Cordray: <<— Here’s an article from my friend Evan Fuchs where he details the remarks from CFPB Director Richard Cordray as given to the NAR at the REALTORS® Legislative Meetings in Washington D.C.

Of course, the Arizona Association of REALTORS® has been keeping us updated on the many changes, as well. Here’s a FAQ page they wrote about the Close of escrow changes coming on August 1st.

Below is a video where Finley Maxson, NAR Senior Counsel, talks about new TRID changes. Take a look!

In the end, we think people will say that it isn’t as bad as they thought it would be. Of course, time and closings will tell. Please remember, the sky isn’t falling, we’ll get through this!

Here’s a link to the updated forms from the Arizona Association of REALTORS.

Here’s a “Review of AAR Revised TRID Forms”