Commencing August 1, 2015, big changes are set to take place at the real estate closing table with the roll-out of newly designed closing documents, formatted to simplify the loan process, providing greater transparency to the consumer.
These changes, put in place by the CFPR (the U.S. Consumer Financial Protection Bureau), are a reaction to the complaints of millions of purchasers who signed off on complicated financing arrangements without understanding them; unfortunately, many ended up losing their homes in foreclosure or through short sales.
One significant change set to take place is a three-day rule, requiring a borrower be given three days to review the loan documents, in advance of the closing. This new system replaces the presently flawed system which forces a borrower to process and comprehend myriad complex and lengthy legal documents on the spot; this is a near impossible task for an experienced Westchester real estate attorney, much less an average buyer.
The new rules will also eliminate and/or combine several overly complicated closing documents such as the HUD-1 settlement statement, the early Truth-in-Lending statement, the final Truth-in-Lending statement, and the good faith estimate of closing costs. For example, the good faith estimate and the early Truth-in-Lending statement will be replaced by a shorter and simpler form known as “the loan estimate form”, clearly explaining the terms of the loan and providing the consumer with estimated loan fees and closing costs. Also, replacing the final
Truth-in-Lending statement and the HUD-1 settlement, will be the “closing disclosure form,” setting down the entire real estate transaction, the terms of the loan and all fees and costs of the closing.
These new forms will all be shorter and easier to understand and the borrower will know at a glance exactly what the interest rate will be, as well as exactly what their monthly payment amount will be; both figures will now clearly appear on the very first page of the closing packet.
In addition, the new documents will also warn prospective borrowers if their loan structure contains features which might negatively impact them, such as pre-payment penalties or negative amortization.
While these rules may cause some initial delays in processing (or even force some lenders to issue a moratorium on certain loans products ) until the new rules can be fully implemented, most experts believe that consumers will ultimately benefit from the simplification of the documents. If you need a Westchester real estate attorney who can explain these new procedures, call the office of David J. Babel, Esq., P.C. for a free telephone consultation.