Red Team’s Year in Review
What a year! I hope that you found 2015 and all its new developments to be as exciting and rewarding as we did.
Among the changes this past year is the implementation of what is called the TILA-RESPA Integrated Disclosure rule, which has literally changed the way we've done business over the last several decades.
The ball started rolling back in 2011, when the Consumer Financial Protection Bureau began working on making the loan process more transparent than it had been leading up to the foreclosure crisis.
As of October 3, 2015, the two "Know Before You Owe" forms have replaced the four disclosure forms you’re probably accustomed to: the Good Faith Estimate and the initial Truth-in-Lending disclosure (provided when you applied for a loan), and the HUD-1 Settlement Statement and the final Truth-in-Lending form (issued just before closing).
By introducing forms that are expected to be less confusing, they hope to make sure consumers understand at every step along the way, the terms of their loans and the fees that they are paying. The following new forms will be used in every mortgage transaction:
The Loan Estimate form includes the interest rate, the fees for both lender and third-party services such as appraisals and title insurance, estimated closing costs and whether the borrower has the right to shop for services like title insurance. It also lists any prepayment penalties or future expected changes in interest rates. Lenders will be required to provide this form within three days of a loan application.
The Closing Disclosure includes the final figures for closing costs, prepaid taxes and insurance, payments, fees and mortgage terms, plus what costs are being paid by buyer and seller—and for the first time, how much is paid to each real estate company involved in the transaction.
Although it should make understanding what fees are being charged and what amount of money is needed at closing much easier, the new variables are going to create some problematic confusion as well.
We’ve already witnessed many delays of the closing process, especially with Investors who were working with Real Estate Brokers who are not yet familiar with the new rules and forms. And it's also creating fundamental challenges for the Lending industry as well...
Rather than waiting until the day of the closing to see the final figures, Borrowers now receive the Closing Disclosure three days in advance. If the type of loan changes, a prepayment penalty is added, or the rate changes more than one-eighth of a percent, another waiting period of three business days is required again—after the redrafted documents have been sent out and received by the buyer.
Another big change is that you’ll be seeing the closing documents drawn up by lenders, rather than by closing agents. While the law doesn't require the lender to draw up the documents, it now holds the lender accountable for any errors.
The National Association of Realtors has advised its members to add 15 days to contracts.
The good news is that these forms have built in many protections for borrowers. But for Investors who are not paying cash, it can make the time to close from contract execution take somewhere around 45 days. With zero tolerance for error throughout most of the disclosures, it’s vital you’re working with both Real Estate Brokers and Lenders that understand the multiple new systems that have been introduced with these forms.
For those of you looking to navigate through this new process both smoothly and effectively, we invite you to connect with us at Red Team Real Estate. We work for our owners, making your investment in your rental property create as much value as possible!
Red Team Real Estate and Property Management
Red Team Real Estate and Property Management was started in 2012 to focus on being the provider of quality service that has never been seen before in property management. Our approach is to serve our owners by providing professional, knowledgeable service with maximum value.