The Consumer Financial Protection Bureau will institute new rules August 1 regarding disclosures under the Truth in Lending Act and Real Estate Settlement Procedures Act that will affect all home builders, particularly those with a real estate lending arm.
Under the new procedures as a result of the Dodd Frank Act, four documents will be merged into two. The Good Faith Estimate and Truth in Lending disclosures will be eliminated and combined into a new single Loan Estimate form, or “LE.”
In addition, the final Truth in Lending Disclosure and HUD-1 Settlement Statement are being replaced by the Closing Disclosure, or “CD.”
What does this mean?First, the Loan Estimate must be delivered to the prospective buyer no later than three business days after receiving the application.
Currently, the HUD-1 Settlement Statement can be presented to the buyer on the day of closing and any changes to the statement can take place during the loan closing.
Under the new rule, the biggest change is that the Closing Disclosure must be provided to the consumer a full three days prior to the closing, and if there are changes during that 72-hour period, the closing could be delayed.
Be Ready a Week Before Closing
To prevent any unwanted closing delays, a good rule of thumb is to have all the paperwork in order a week before the scheduled closing date. So if you want to close August 10, make sure everything is ready August 3.
These new rules are intended to streamline the loan application process and make it easier for consumers to understand by clearly spelling out the most relevant details all on one page – the interest rate of the mortgage loan, the amount of the monthly payments and a listing of all the closing costs.
For those applying for adjustable rate mortgages, the documents will explain how their interest rate and future monthly payments could change based on certain factors.
NAHB was actively involved during the rulemaking process, submitting comment letters both individually and with coalition partners urging the CFPB to ensure that any changes that would make it easier for consumers to understand and comply with the settlement process would not place any undue burdens on builders, lenders and other housing professionals.
NAHB will conduct a webinar June 24 to educate and prepare our members for the impending changes and to show how builders can work proactively with lenders and settlement stakeholders to avoid unnecessary delays to closings. The webinar will also outline strategies to minimize potential issues by communicating with customers and business partners.
See more details on the upcoming new lending rules.