This fall we have seen several program and underwriting guidelines change. One of the biggest changes to the mortgage industry will happen with all new loan applications taken on or after October 3, 2015. The Consumer Financial Protection Bureau (CFPB) has come up with new forms that will be used in place of the Good Faith Estimate, Truth In Lending and the Settlement Statement.
The Good Faith Estimate and Truth in Lending will be replaced by the Loan Estimate (LE). This disclosure will be given to borrowers within 3 business days from the loan application date. The new form is a 3 page document that goes over the type of loan, interest rate, monthly payment, closing costs and other terms of the loan. One of the biggest changes is that this form will give the borrower the amount of money they need for closing. The old GFE gave closing costs but did not include the entire amount needed at closing. The other big change is that it will disclose the Annual Percentage Rate (APR) like the TIL did and also a new calculation. The new number is the Total Interest Paid (TIP). This number will be high and consumers are not used to it. In the past the TIL showed the total you would pay over the life of the loan if you did not make any extra payments. Now you will see a Total Interest Paid calculation that will probably be over 60% and that is common! This is the interest paid over the life of the loan as a percentage.
The Settlement Statement is being replaced by the Closing Disclosure. This form has to be signed by the borrower at least 3 business days before closing. The Closing Disclosure (CD) will have the amount you need at closing, information about your loan and monthly payments. We will work on getting this form out to the borrower at least 4-6 days before closing. Ideally it will be sent electronically and can be sent back the same way. That will be the fastest. If there are changes to the CD it may delay your closing.
The most important thing to remember is to get information to your loan officer early. Now as soon as you write your purchase agreement, you need to talk to your insurance agent and get your homeowners insurance. We will need your insurance binder before we can issue the CD. If there is an association, we will need to get the questionnaire completed quickly. We need to know if there is a power of attorney or a loan subordination. Any invoices that we need to collect at closing will need to be in our hands prior to the CD being issued.
The benefit to these changes is that you will know how much you need for closing early. The closing package may not get out at this time, but the instructions will. The loan does not need to be approved through underwriting for the CD to be issued but we are requiring that it has been submitted to underwriting before we issue the CD. Hopefully these changes will avoid last minute rushes at closing.
It will take some time to get used to the new changes. It will be much more difficult to do quick closings. In the beginning, we will probably want to see a minimum of 45 days to closing – so 45 days from when the purchase agreement is accepted until you are closing on the new home. Shorter times may be possible but may also set you up for the potential of a delayed closing. The best thing a buyer can do is to get all the information to the lender as soon as possible and respond quickly when asked for any additional documentation.