Safer Mortgages with Fewer Surprises

trueSafer Mortgages with Fewer Surprises

“Safer mortgages with fewer surprises” is the motto of the Consumer Financial Protection Bureau (CFPB for short) which I found when I first went to the website for this institution.  I am all about disclosing to the client/consumer what the itemized costs are to purchase a property.  I am all about repercussions for institutions that don’t do their job correctly. These are honest business practices.  Kudos to the CFPB.

Yet, There is Something Bigger Lurking

Now, the Dodd-Frank Act, which created CFPB, has really great advantages for the consumer; yet, there is something bigger lurking in the shadows.  The bigger animal lurking in the shadows is the punitive measures towards mortgage and title institutions to implement the upcoming changes.  My biggest question is “Why the drastic measures”?

You Think Lending is Tough Now?

You think lending is tough now?  Wait until the new legislation of the CFPB begins.  The new items the government is requiring the lenders to do will cause lenders to:

  1. Be Consistent in Underwriting
  2. Use a Conservative Approach
  3. Increase Documentation

Mortgage Lenders Violating the Ability for the Consumer to Repay

Mortgage lenders violating the ability for the consumer to repay will most likely face these repercussions. The borrowers may receive:

  1. All fees & up to 3 years of finance charges
  2. Actual damages (could include down payment)
  3. Statutory damages up to $4,000
  4. Court costs and attorney fees
  5. Defense against foreclosure

Ouch.  This will result in an increase in time, cost, and a possible increase in interest rates. Bye, Bye Settlement Statement (HUD-1); Hello, Closing Disclosure.

Beyond renaming the Settlement Statement to Closing Disclosure, the CFPB has completely revamped the document.  User friendly?  I don’t know; I am not going to be the judge of that.  However, it is flashy.  Detailing every last thing for the buyer/borrower to see.  Cool!  Fantastic.  Yeah, disclosure.

The Burden Falls to the Title Company

The burden falls to the title companies to be able to adapt to this new radically new form.  Plus, they will will need to produce the Closing Disclosure 3 days prior to closing or the closing cannot happen on that day.  So if you want to close on a Friday, the Closing Disclosure needs to be sent to the buyer/borrower by Tuesday.  With the practice of closing packages from the mortgage lenders not showing up at the title company sometimes until the eleventh hour (ask some of my more recent clients), this makes this feat very, very difficult.  This again, will probably cause title fees to go up across the board.

There is one other small detail on the Closing Disclosure Form, which at this time is slated to be instituted in August 2015, that I hope they will correct; there is no place for the seller signature.  Oops.

These Changes…

These changes are daunting; game changing; possibly industry changing items.  We will see changes that will affect the mortgage and title companies down the line, which will in turn affect the consumer.  Regulation has a way of translating into increases in fees just to accommodate changes.

I would not be surprised if one day our children or our grandchildren will be learning about the affects on our society of the Dodd-Frank Act in U.S. History.  It could rank right up there with the Homestead Act, Sherman Antitrust Act, Civil Rights Act, etc.

Thanks to….

Marianne Collins, Executive Director And COO Ohio Mortgage Bankers Association
Scott Stevenson, CEO/Principal Northwest Title Family of Companies
for their presentation materials from the Dodd-Frank & It’s Impact on Realtors® on March 28, 2014.