No More 30-day Closings? The Elephant in the Room!

May 28, 2015

TRID? – On August 1, 2015 the Consumer Financial Protection Bureau (CFPB) is requiring the roll-out and enforced usage of new mortgage loan disclosures and replacing others.  TRID stands for the “Truth-in-Lending and Real Estate Settlement Procedures Act Integrated Disclosures” and these new disclosures will replace the Good Faith Estimate, Truth-in-Lending Disclosure and the HUD Settlement Statement. WOW! This is big news and these new disclosures (Loan Estimate and Closing Disclosure) will mean BIG CHANGES for many of the parties in a Real Estate purchase and refinance transaction.

Expect-Delays-sign(1)

New mortgage disclosures = MORE PAGES + MORE DELAYS.

In our industry, new disclosures usually means MORE PAGES and MORE DELAYS!  This is also true in this case.  These new disclosures will require a delay before the appraisal order can be placed.  The borrower must know exactly what their loan will look like BEFORE the appraisal is ordered and this will result in delays “out of the chute” for many new loans simply because many borrowers are still considering their loan options during those first few days of the mortgage loan process and sometimes have not had time to fully consider the consequences of a 15 year loan verses a 30 year loan, or an FHA mortgage with less down payment compared to a conforming mortgage which usually requires more down but a less expensive monthly mortgage insurance premium.  All of this must be considered, numbers need to be gathered and compared and a busy couple with active kids needs to find a few peaceful few minutes to consider all of this information in the midst of inspections, contingencies, offers, counter-offers and packing!  YIKES!

If that is not enough, the biggest delay related to these new disclosures comes at the end when everyone is weary, worn-out and tired of receiving daily emails from their loan originators, Realtor, inspectors, movers, utility companies, etc.  All of the final numbers represented on the new Closing Disclosure (which replaces the old HUD 1 Settlement Statement) must be “spot-on”, no changes and exact – 3 DAYS PRIOR TO THE CLOSING DATE!  This means no additional changes, last minute fees, or forgotten invoices can be added during those last 3 days prior to the closing date.  If so, then the closing will be pushed back another 3 days to allow the new Closing Disclosure to be printed and received by the borrower to review. Here is link from Frank and Brian at the National Real Estate Post where their video gives more details: Click Here.

The issue at hand with these new disclosures - Will 30 day purchase closings be a thing of the past after August 1?

The issue at hand with these new disclosures – The Elephant in the Room – Will 30 day purchase closings be a thing of the past after August 1?

Many in the industry are hinting at the likely consequences of these delays come August 1 but I have not heard any admit what I am about to say.  Realtors who what to avoid the high-pressure finger-pointing, name calling, threatening phone calls and punishing per-diem being charged to their buyers caught in the middle of these changes will wisely prepare their buyers and sellers for 45-60 day closings rather than 30-40 days closings which will result in eventual extensions and everyone hating everyone at the end of the transaction.  Allow me to address the elephant in the room – these loans will not close until the lenders fulfill the new federally mandated time-lines which are put in place to protect the buyers from being rushed into a 30-year decision – regardless of when a Real Estate Purchase Agreement says the transaction will close.

Please be smart when setting realistic expectations with buyers, sellers, Realtors and your loan originators and set dates which will allow the new system to work to protect the buyer from being caught in a pressure-cooker of unrealistic and overly demanding deadlines which do not serve anyone well.  It is my opinion that a 30 day closing for a purchase transaction is now another historical display in the Museum of Mortgage Lending right beside pre-payment penalties, negative amortization, interest-only loans and 30-day adjustable mortgages.

The CFPB wants to do all they can insure that there will be no surprises for any borrower at the closing table.

The CFPB wants to do all they can insure that there will be no surprises for any borrower at the closing table.

Rushing a home buyer into a 30 year commitment and several hundred thousand dollars of debt with a stack of “sign here quickly” documents and terms not understood or clearly explained is never a good idea, in my opinion.  The CFPB is doing their best to slow this whole process down to allow the borrower digest the details of what is happening.  Buyers. sellers, Realtors, closing attorneys and mortgage originators must now embrace these changes, work as a team and make these Real Estate transactions a positive experience for all parties involved.  Our industries need the public trust and these changes are part of us all working together to rebuild what was lost in the “rush to simply close deals” from 2000-2008 with very consideration given to making sure the buyer knows what they are signing at the closing table.

REALTORS – To view a video presentation by Kenneth Trepeta Esq, Director of Real Estate Services for NAR, explain the new rules and regulations and review the new forms – CLICK HERE.

Advertisements

Divorce the House, too?!

November 12, 2008

bighouse1Earlier this week I spoke to a prospective borrower who wanted to refinance his house after an unusually long and drawn-out divorce which was finalized in July of this year.  He kept the house and she was awarded $25,000 in cash from the “equity” in the house which, I was told, appraised at more than $920,000 one year ago!  He “only” owed about $830,000 on his house, so “on paper” this looked like a pretty “fair” arrangement. 

The only problem with this “$25K-worth-of-equity-to-the-ex” scenario was that his house is now only reported to be worth about $780,000 on an online home valuation website, or about $50K less than what they collectively owe this house with 5 bathrooms which they bought 7 years ago for only $600,000.  His quandary was only further complicated by the fact that he has had a couple of recent business failures and had only just started another new business 3-4 months ago in a very fickle industry.  No wife, no income, no business and a house that is pulling him under financially – that he is stuck with!  This sounds like another country music song in the making!  Hold on….. I’ve got it!  “My Home is a Man-Wrecker!” (You heard it here first!)

Last month I attended a legislative work-session in Nashville with a couple of key state legislators capitoland leaders from the housing industry (mortgage brokers, mortgage bankers, home inspectors, appraisers, and Realtors) to meet with an Obama-Harvard-Law-School-classmate-yearbook-toting-attorney-turned-Realtor-from-Illinois who was asking for feedback from several of us in the state regarding this very dilemna – couples (especially women, I assume) being wrecked by their houses after their divorce was finalized.  (Yes!  She REALLY carried in her yearbook and she was on the same page as the new Prez!) 

obamaWe were told that too many “newly-single, fresh-starts” tried to hold on to a house which was beyond their means and were emotionally unable to swallow the idea of ditching the “loser” and also having to move, at the same time.  The desire to keep the kids in the same school, the dog in the same yard and the satellite dish on the same roof tended to outweigh the conventional wisdom that, in most cases, one less income (even with some child support coming in) can not usually keep up with the same sized house payment.  We heard that the problem is that the remaining spouse is usually given 2-3 years to refinance or sell the house and maybe split some equity or to hand over the 401K to the departing spouse in trade for the equity to be realized by the remaining spouse at some time in the future.  (Sounds like a great deal, huh?!)

Whoa!  How ’bout that for a series of gut-wrenching assumptions in world which has turned topsy-turvey during the last 2 1/2 years!  House appreciation, job security, stock market stability, and credit profile integrity.   All of these can be uncontrollable variables which will either make it possible or impossible to ever get the departing spouse off of the mortgage – regardless of whether he or she “quit claims” (takes their name off of the house title work) their ownership interest to the remaining spouse.  This is a formula for certain financial ruin.  Why was it when a young couple stood before “God and in-laws” and promisedwedding-vows1 “til death do us part” that we thought they meant each other rather than the half-million-dollar house they think they should hold on to even when the judge orders them to split it all and move on.  (Surely, he didn’t REALLY mean to get rid of the house!)

The Obama classmate was advocating new Tennessee laws to require divorcing couples to get “free” mortgage approvals, home inspections, appraisals, and title searches to protect the remaining spouse from future calamity because of unexpected deterioration of the house, liens against title, over inflated assumptions of value and the inability to qualify for a mortgage – any of which would ruin the hope of making the decision to keep the house a good one.  (That 401K or IRA is sounding better and better, even in this market!)

We didn’t all agree about which law would be best or even if new laws were necessary at this point.  We all agreed that this was a big risk and all that parties needed to be informed of the dangers of keeping a house after a divorce.  We just didn’t agree about what could be done and how much legislation should be piled on an already very litigious process where attorneys and judges are already deeply involved in the personal “affairs” (no pun intended!) of two disappointed adults who thought they could beat the odds and make it through the long haul – with their combined accumulated wealth intact to the end.

It seems to me that couples should usually get rid of the house – especially if there is still a mortgage on the property.  Cleaning up that kind of mess is never as easy as one might think and could often take longer than most second marriages last!  However, in this period of declining home values, limited credit options and an unstable employment market – buy and selling houses has almost come to a stand-still in some markets.  This will cause housing markets to be flooded with inventory and homes to stay on the market longer and longer – bringing down the sales prices of homes which “must sell” to make way for a final divorce decree and marital dissolution agreement.  Years of accumulated equity in the family home may be sacrificed and never regained if a home is sold – no matter what.  This causes the houses in the surrounding neighborhood to also depreciate in value and should remind all readers that a marriage failure does really hurt the WHOLE community in MANY ways.

sleeping_couple-231x192In my 10 years of working with home buyers from all walks of life I seldom see one who comes out any better after a divorce.  The truth is – we’re all a bunch of rascals and we all blow it, from time to time.  Maybe this slow-down in the housing market will give some angry couples the opportunity to “cool down” and think through the consequences of throwing a marriage away while they wait for their house to sell.  Maybe they’ll realize that for the sake of their kids, their parents, and their own integrity that they promised “for better or for worse, for richer, for poorer, in sickness and in health” – not to the house but that one on the other side of their “sleep number” mattress.