Eight months into the most comprehensive and challenging set of rule changes affecting homebuyers and sellers in more than four decades, how’s it all going?
Are the federal government’s revised procedures governing mortgage lending and closings doing what they promised: improving consumers’ ability to understand the fees they’re being charged by lenders, title insurance companies and others at settlement?
Have the changes, which took effect Oct. 3, led to the delays and chaos in home mortgage transactions that were widely feared? Or have they amounted to a Y2K pseudo scare – no big deal?
The preliminary results are rolling in and they’re mixed. There’s strong evidence that average times to close loans are longer than they were under the old rules. Rather than estimating roughly 30 days to final settlement, most realty agents are writing sales contracts with extended closing deadlines.
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The average time to close on a home purchase mortgage nationwide last month was 45 days, according to loan technology company Ellie Mae. That’s down from the 51 days average in January but above historical norms.
But a new study gauging consumers’ experiences before and after the new rules took effect suggests that things may be looking up. It found that 92 percent of buyers are taking time to review their mortgage documents in advance of the settlement – making use of the three days they’re now allotted to do so.
Under the old rules, just 74 percent said they had taken time to study fees and look for overcharges or errors. The study, conducted among 800 buyers who settled before the rules changed and 700 who went to closing after the rules took effect, was sponsored by the American Land Title Association.
Meanwhile, a separate survey of 1,000 buyers who had purchased and settled on homes under the previous rules and purchased another house more recently reported drawbacks and benefits. Nearly two-thirds said it was “easier” to close under the old system, and nearly 60 percent said the process now takes longer.
But 68 percent said the new disclosures – one that replaced the Truth in Lending and Good Faith Estimates forms, and a second that replaced the “HUD-1” settlement document – “did a better job preparing them for the closing costs they would have to pay.” Sixty-five percent said the costs and fees are now “explained better.”
Buyers also were pleased by being encouraged to shop for settlement services such as title insurance. Three quarters said they took advantage of the opportunity to comparison shop and 55 percent said they saved money as a result. The study was conducted by ClosingCorp, a technology and data company.
Elizabeth Weintraub, who bought a home last winter in Hawaii, illustrates the mixed feelings some consumers have about the rule changes. Although she is a real estate agent in Sacramento, California, and believes that “most lenders” have adjusted to the new forms and procedures, the loan officer who handled her island purchase made mistakes that led to a four-day closing postponement. He emailed key documents to the wrong place, she said, and missed the three-day deadline for providing closing information in advance. To remedy this, she said, he altered the date on the Closing Disclosure – a violation of federal regulations.
“It was a comedy of errors throughout,” she told me.
Lise Howe, a realty agent with Keller Williams Capital Properties in Rockville, Maryland, said that things got bumpy in the early months – she had two settlements delayed in December alone – but most closings since then have proceeded relatively smoothly. But errors on settlement documents continue to be a problem. In a closing in mid-May, she said, a major national bank miscalculated fees and ultimately had to provide a $2,000 credit to the buyers.
Lenders, for their part, say compliance with the extensive changes – the regulations issued by the Consumer Financial Protection Bureau run to nearly 1,900 pages – has been a massive and costly challenge. According to a survey of 548 banks by the American Bankers Association, lenders are being forced to charge more at closing to compensate for the added staffing and training needed to adhere to the rules. The added costs average $300 but some lenders are charging up to $1,000 more.
Bottom line: Be aware of the pluses and minuses of the rule changes. Expect greater transparency about costs – and more time to check them out – but also maybe a little longer time to close and increases in fees.