Changes next month in documents used in real estate transactions will require an additional step before closings, real estate experts say.
The federal Dodd-Frank Act, passed in 2010, requires changes in the rules for closing on real estate purchases, said Scott McElmurry, chief executive officer of Bank of Little Rock Mortgage. The changes take effect Oct. 3.
The moves were made to improve loan disclosure to homebuyers. Two disclosure documents, required by the Truth in Lending Act and the Real Estate Settlement Procedures Act, are being combined.
The changes will affect homebuyers applying for loans for property or homeowners seeking to refinance mortgages, McElmurry said. The lender is currently required to provide a good faith estimate for the loan and an initial truth-in-lending document, McElmurry said.
"We feel the new loan estimate gives a much better understanding to someone buying a house, in a much more readable form than the good faith estimate provides," McElmurry said.
When the consumer goes to the closing, he currently gets a final truth-in-lending document, as well as a statement that breaks down all of the costs, McElmurry said.
Beginning in October, the documentation will be known as a closing disclosure, which captures all of the costs paid by the consumer, according to the National Association of Realtors.
It must be delivered to the consumer at least three business days before closing, McElmurry said. The three-day waiting period cannot be waived, he said.
But that requirement could make it difficult for a consumer selling his home and using money from that sale to buy another home at essentially the same time.
If the consumer isn't getting as much money back as he anticipated by selling his home and needs to borrow more money to buy the second house, a new closing disclosure may need to be reissued and three more business days have to be given to review the changes, McElmurry said. Making such a change now might take an hour, he said.
"Now, we've had times when a customer is able to close within two weeks when everything falls into place perfectly," McElmurry said. "That is going to be very difficult to happen [after Oct. 3]."
A recent National Association of Realtors survey indicated that more than 80 percent of Realtors say they have taken part in some form of training on the new rules.
"In the early going, consumers might expect to see the mortgage process lengthened," said Chris Polychron, president of the Realtors association. "To address potential delays, many Realtors report that they are planning to put a longer time horizon on their purchase agreements."
The National Association of Realtors also suggests that consumers be wary of scheduling back-to-back closings because there is a risk that one of the transactions may be delayed.
Delays could be a week or more, McElmurry said, if a lender mails the closing disclosure to the consumer.
It isn't uncommon now to close on a house within 30 days. With the changes, 45 days for closings could be more common, McElmurry said.
The changes are getting a "very negative reaction now," McElmurry said.
"That may be overblown," McElmurry said. "It may be that it's not that much of a problem. But a lot of people in the industry are saying, 'No more 30-day closings. You're going to have to go to a 45-day contract.' I don't think that's a wise thing to do right now."
The new rules are "going to slow everything down," said Roddy McCaskill, who retired last month after 39 years as an agent and executive broker for several Little Rock real estate firms.
"I don't see it accomplishing much," McCaskill said. "It's just going to add another layer of paperwork."
One good result of the changes is that it should make Internet mortgage lenders more accountable, McCaskill said.
"It used to be that an Internet lender might quote [an interest] rate of 3 percent and when you came to closing it was 4 percent," McCaskill said. "We don't have issues like that with our local lenders."
McCaskill said there may be problems with closings for about six months, but everything should smooth out over time.
SundayMonday Business on 09/06/2015