The way buyers are getting pre approved for home loans is going to change this August! The new Dodd- Frank rules will change the way homes are bought and sold. Whether you are a buyer or seller, you need to know how this is going to affect you!
What is Dodd-Frank?
In 2010, the Obama administration passed a massive piece of financial reform legislation called the ‘Dodd-Frank Wall Street Reform and Consumer Protection Act’, in response to the financial crisis. The act’s numerous provisions are intended to decrease various risks in the U.S. financial system. Dodd-Frank also created the Consumer Financial Protection Bureau (CFPB), to protect consumers from ‘unscrupulous business’ practices by banks.
New disclosures for mortgage applicants
For more than 30 years, Federal law has required lenders to provide two different disclosure forms to mortgage applicants. These forms were separately developed by two different Federal agencies, under two different statutes. The forms are notoriously hard to understand and confusing for home buyers.
The CFPB created a new -easier to understand- lending disclosure. This new disclosure is referred to as ‘TILA-RESPA’, and will come into effect August 1st, 2015. The disclosure will explain to buyers the ramifications of their loan, and include information such as: interest rate, monthly payments, a Loan Terms table, a Projected Payments table and a costs at closing table.
Other new rules at a glance
The Ability-to-Repay (ATR) and Qualified Mortgage (QM) Standards rule has received the most attention. It is intended to protect consumers from irresponsible mortgage lending by requiring that lenders follow strict procedures for determining that prospective borrowers can actually repay their loans.
In addition, a new mortgage servicing rule is intended to establish stronger protections for homeowners facing foreclosure. New loan originator compensation rules address practices that promote steering borrowers into risky or high-cost loans.
How will the new rules affect transactions?
1. The new regulations could make it more difficult to close on a home mortgage as lending practices change and buyers have to provide even more documentation to close a loan.
2. The new rules have severe implications for the way Title, Escrow and Mortgage companies do business. For example, important e-mails will need to be encrypted to prevent fraud, and new software will be required to support the new disclosures. Many vendors are not ready to be able to comply with the new regulations and August 1st is only 4 months away.
3. Many lenders and title companies believe that any escrows opened after August 1st, will be delayed as a result of the new regulations. Whereas escrows take about 30 to 40 days now, they may take as much as 60 days in the first few months following August 1st.
It won’t become impossible but there will be a learning curve for everyone involved in real estate; the buyer, the seller, the lender, the real estate agent and the title company.
Tips
1. Make sure you work with qualified, well-educated real estate professionals. Now more than ever it will be critical to work with a Realtor who is educated about changes coming and has the company resources to help you successfully buy or sell during the transition period.
2. Ask your vendors whether they are already certified according to the new CFPB regulations, or at least in the process of achieving the August 1st deadline. For example the California Title Company is already fully accredited, and our Escrow company “Pickford Escrow” is well on its way.
3. As part of the new regulations, vendors are required to handle your personal information with more care to prevent fraud. It may be a good idea to ask your escrow company if they encrypt important e-mails to protect your privacy.
As part of the Berkshire Hathaway network we are qualified to help you navigate today’s changing real estate market, and we are here to help you achieve your goals! Questions? Give us a call at (949) 395-0969.
About Jaleesa Peluso
Jaleesa Peluso is an Orange County Real Estate Agent with Berkshire Hathaway HomeServices California Properties. For more information about Orange County Estate visit: www.jaleesapeluso.com. Contact: (949) 395-0960 or Jaleesa@JaleesaPeluso.com.
This information is provided solely as a courtesy by Jaleesa Peluso, Coastal Orange County Realtor. It is deemed reliable, but not guaranteed.