How are home closings going nearly two months after the new federal real-estate disclosure rules took effect? Are they being knocked off schedule and taking much longer from date of sale to final settlement, as some mortgage industry executives predicted?
It depends on who you ask. Kristy Ryan, an agent with RE/MAX Fine Properties in Scottsdale, Ariz., tells of a recent closing on one of her transactions – a $1.3 million home with a million-dollar mortgage. It got delayed when the buyers complained that the settlement form they received called for significantly higher mortgage fees than the lender had projected weeks earlier. That’s a glaring no-no under the federal rules, and buyers have the right to demand conformity between the two. In this case, it meant that the lender had to lower its charges and reschedule the closing.
In San Jose, Calif., mortgage broker Russ Glines of Century Oak Financial Group says the transition to the new rules, which aim to enhance accuracy and transparency for buyers and sellers, has been rocky. “Everything’s getting delayed,” he told me, because “communication between lenders and (closing) agents has been haphazard at best” and key service providers have different approaches to filling out the forms and getting estimates right. As a broker, Glines works with multiple lenders and has to follow each of their often-conflicting interpretations of the rules. Some delays are pushing appraisers’ schedules back and adding days to the process. Fully 90 percent of Glines’ recent transactions “have gone long,” he said – failed to close on the originally scheduled date. That’s disruptive and potentially costly for buyers and sellers who have moving vans packed and ready to go. Plus they’re a pain for realty agents and everyone else involved in the sale.
But check elsewhere and you hear the new rules haven’t been troublesome. In Washington D.C., Rod Rochowiak, president of Better Homes and Gardens Real Estate Premier, says “we have not had any delays – it’s been great” so far. The key, he says, is realty agents who are trained to keep on top of lenders, document flows and timing throughout the process. That way they catch potential problems and disruptions and get them fixed before they knock deals off schedule.
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In Alexandria, Va., Allison Goodhart of McEnearney Associates Inc., says settlements since the onset of the federal reforms have been “smooth because our transactions that have settled have been at reputable title companies with good lenders who have been working very hard to make sure all timelines are adhered to.”
Meanwhile, a survey of 2,000 realty agents nationwide turned up no “significant effect” of the new federal rules during the month of October. But Tom Popik, research director for Campbell/Inside Mortgage Finance surveys, said it’s likely that any important issues that exist will start showing up in the November and December surveys, since it typically takes more than a month for loans to close in normal market conditions and some are stretching out to 45 days under the new rules, which only took effect Oct. 3.
The federally mandated changes to mortgage and real estate settlement procedures are spelled out in nearly 2,000 pages of directives. Among other things, the rules have eliminated the familiar Truth in Lending, Good Faith Estimates and HUD-1 closing documents that the lending and title industries have used for years, replacing them with an upfront Loan Estimate (LE) form and final Closing Disclosure (CD). Failure to comply with the rules can result in large financial penalties, and that has made some lenders hyper-cautious about getting every number on the forms right, according to Glines. When some lenders discover a discrepancy, he said, they insist on re-starting the entire loan origination process over again.
Even with sophisticated software packages designed to streamline compliance, things can go haywire. Sue Hill, an agent with McEnearney in Washington, D.C., said she recently had her first settlement under the new procedures “and it was a mess.” The title company’s “software did not interact well with the lender’s software and the closing documents” were out of sync. “The title attorney was furious because this made him look bad” and the closing had to be rescheduled.
Bottom line for sellers and buyers: Be aware that the new rules are proving challenging for some lenders and title agencies and closings are taking longer. So when you shop for service providers, add this to your list of key questions: What’s your track record with the new procedures?