Two Important Changes to the Real Estate Loan Closing Process

Attention all real estate agents: changes are coming…and soon!

Effective August 1, 2015, the Consumer Financial Protection Bureau (CFPB) will impose new rules that will change many aspects of the real estate loan closing process.  So what are the new rules and how will they affect you?

Here are two changes to note:

1) Lenders must provide two different disclosure forms to the consumer, better known as your buyer.

The first form is the Loan Estimate and must be provided to the consumer within three business days of the application. This one is similar to the Good Faith Estimate we just became used to recently.

The second form is the Closing Disclosure and must be provided to your buyer three business days prior to closing. The Closing Disclosure form will combine the current Truth in Lending (TIL) and Settlement Statement (HUD-1).

It is important to note that there will no longer be a TIL or HUD-1 at closing, only the Closing Disclosure form. Therefore, there will also be a separate disclosure form for the Sellers. Only the Buyer Closing Disclosure will be subject to the 3-day prior to closing rule but it is still important to get all invoices to your closing attorney early to make sure nothing is overlooked.

The goal of the new disclosure forms is to improve consumer understanding, allow for comparison shopping and avoid costly surprises at the closing table. Although there are many positive aspects of the new closing disclosure forms, be prepared for some growing pains in August.

The new 3-day rule regarding the Closing Disclosure will likely cause lender closing delays. Ultimately, it would be wise to prepare your clients for possible delays in closing.

2) Law firms will now be vetted as third party vendors by lenders.

What does this increased scrutiny mean to real estate professionals? Simply put, in order to continue to close real estate transactions attorneys must adhere to the new CFPB rules and obtain certification as being ALTA (American Land Title Association) Best Practices compliant.

ALTA Best Practices are standard benchmarks for the operation of an office that closes real estate transactions. The most important aspect of the ALTA Best Practices is that the CFPB will now require attorneys to maintain and enforce written policies and procedures that protect client privacy, more specifically their Non-Public Personal Information (NPI). Such policies include a “clean desk policy”, secure email encryption procedures and secure office and storage policies.

Hutchens Law Firm and other leading firms across the State have already started to implement these policies and procedures. You may have already started receiving encrypted emails from your closing attorney. It is not as easy as it used to be to read them on your phone or tablet but get used to it because we will be required to encrypt any email that contains an NPI, including loan documents, 1099 information, payoff information, forwarding addresses, phone numbers, wiring instructions and wire confirmations.

Closing attorneys will also be taking extra measures to be sure their offices and ultimately their clients’ information is secure and CFPB-compliant.

Don’t be surprised or offended when you find that your small town law office will no longer let you walk back to see your favorite closing paralegal without signing in as a guest first. Law firms will now be required to secure any work areas that contain NPI. With the new rules in place, security will be a top priority.

Published by Bess Harris Reynolds on June 18, 2015