The New World of Closings that August 1 Brings

The economic meltdown of 2007-2008 brought a lot of attention to the real estate business, and to the mortgage industry specifically. As a result of major issues over how residential mortgages were closed and sold, Congress introduced a number of regulatory changes dealing with this important segment. The stated goal of all the new rules and laws is to increase consumer awareness and the transparency of financial transactions.

New Laws and New Processes

The Consumer Financial Protection Bureau was chartered as part of this legislation. Among many other responsibilities for consumer credit, the CFPB took over administration of the Real Estate Settlement Procedures Act. While this function formerly resided with HUD, the forms defined in RESPA have been restructured and renamed.

What has been known as the HUD-1 closing process involved the well-known HUD-1 settlement form and the lender’s Good Faith Estimate. Those two documents, as well as the Truth in Lending Act disclosures will be eliminated as of August 1, 2015. They are replaced by new procedures and forms, including the:

• Closing Disclosure form and
• Loan Estimate form.

In addition to these and other documentation changes, there are new rules pertaining to closings that go in effect on August 1. For example, all documents that are part of the closing must be completed and presented to the parties a full three days before the closing. This is a hard and fast rule, so much so the National Association of Realtors is recommending that all the documents be prepared seven days prior to the closing date.

This approach allows time to comply with the three-day requirement and still have time to make any changes the parties find necessary. Short of this, there are other rules and requirements that may require you to start the countdown all over again. While there are exceptions to restarting the waiting period, there will be a new focus among the realtors, buyers and sellers, and mortgage companies to cooperate and resolve any issues prior to the new closing window.

There is a great deal of information available about these changes from a number of sources, including on the CFCB website. If you are just starting to get up to speed, you have until August 1, but you should allow yourself plenty of time to review the numerous changes. The CFCB information and a visit to Realtor.org/respa are excellent starting points for your educational process.