How to Have Fast Mortgage Closings Under New Rules
The big change the main stream media doesn’t understand.
So we always see the big media outlets running stories about the housing market and the mortgage industry. They should, right? I mean after all, these are the two financial topics that impact more people in the country than anything else. The problem is that the media kind of understands the housing market (sort of ), but seem to not even have an elementary grasp of the inner workings of the mortgage environment, and what it takes to have fast mortgage closings.
This has never been more evident than October of last year. That’s when the biggest changes to the mortgage world since 2010 went into place. The CFPB (Consumer Financial Protection Bureau) enacted TRID (TILA-RESPA Integrated Disclosure). All gibberish, right? Exactly. That’s why the news outlets glanced over this big change. It should’ve been a great story for them – if they were to take time to understand why.
They should have been able to tell a story about how the CFPB, in an effort to “protect” consumers, were dabbling in processes that even they didn’t full understand. That’s because even though they have periods where they take “feedback” from the industry, no one driving the ship there has any recent experience in the industry. Since they’re removed from daily operations, the CFPB, like the media, don’t realize that the biggest impact on consumers on a daily basis is not “predatory lending” but rather delayed, missed, and failed closings that happen for a variety of reasons. Outside of the industry, all people know to talk about our rates and fees – because that’s what they’ve been taught. Many miss the point that without fast mortgage closings, those things are moot points, if the deal falls through!
In today’s mortgage environment of ever increasing regulations, fast mortgage closings have become increasingly challenging. The bigger the institution, the harder it is for them. While they all have ups and downs depending on region and day-to-day volume, the big banks like Chase, Bank of America, and Wells Fargo often struggled to close within 45 days before this new rule was passed. Keep in mind, in most markets, a 30 day closing is expected! So if a consumer is getting a loan through one of the big guys, they’re already starting out behind.
So what changed?
So what exactly does this rule from October do? Existing rules already mandated that certain disclosures be issued to borrowers within 3 days of an official application. They also required for these to be re-issued if any significant changes occurred that impacted the borrower negatively. If this happened, it was required the borrower have 3 days to review these changes prior to closing. The new rule adds another layer to this.
Since the dawn of time (possibly a slight exaggeration), the final document a borrower reviewed was called a HUD1. This was the official settlement document that showed where all the money goes, both on the buyer’s and seller’s side. Under the new rule, this was replaced with a document called the “Closing Disclosure,” abbreviated as the “CD.” Due to the nature of the timeline of most deals, borrowers always had a pretty clear picture of their final numbers, but the official HUD statement was commonly issued a day before, or on the day of closing. The CD however, which covers similar information to the HUD, mandates that the borrower have a 3 day review period.
Why does that make it harder to have fast mortgage closings!?
This 3 day period doesn’t count Sundays (or holidays). So when the new rules came out, this added 3-4 days to already highly-stressed closing time lines. This opens consumers up to far more liability than it protects them from. See, in most markets, we have rising real estate prices (some rapidly rising). So in markets like DFW, Denver, and many others, if a buyer goes under a 30 day contract, the sellers agent is likely sitting on a stack of contingent offers. The closer it gets to the end of the contract, the more likely it is that there are contingent offers for far more than what the buyer has contracted for. While this is going on, the seller is also sitting on a few thousand dollars of the buyer’s earnest money deposit.
So if contract expires due to complications over the new disclosure rules, or anything else for that matter, the sellers and their agent have a decision to make. They can agree to extend the contract. Or they can choose to dissolve it because the buyer didn’t keep their end of the deal due to not meeting the agreed upon closing date. At that point, the seller is free to keep the buyer’s earnest money in most cases, and go back and review additional offers – sometimes for thousands of dollars more than the original contract. That’s what makes it so tempting to the seller and so dangerous for the buyer.
How we can help…
Unlike many of the big guys though, top-tier lenders have processes in place to make these delays less likely. Many lenders will only issue the CD when the loan is clear to close. My group however has enacted a process that allows the CD to be issued once I have the appraisal back for my borrower and an initial underwriting decision, as opposed to a final clear-to-close decision. So as long as there are no changes to APR, loan type, etc., my borrowers have already completed their 3 day period once we receive final approval. So then everyone’s free to go to the closing table! That’s how we can still close mortgages fast!
This is why boutique lenders like myself can consider 20-25 day purchase closings on many deals, while other lenders are struggling to make 30 or 45 days. So always remember, while rate’s important, there’s a lot more to choosing your lender than finding a “good” rate on the internet. You’ll want to ask them about their ability to close mortgages fast, and ask them how they handle issuance of the CD. Start asking about the CD issuance process, any lender will know they’re speaking with a buyer that knows what they’re talking about!
As always, if you’re considering a purchase, we’d love to speak with you and talk about how we can help you and your agent get an accepted offer, and how we take care of buyers in ways that big lenders and internet companies can’t and won’t.