Changes on way for mortgage closings

More than 25 percent of homebuyers report problems at closing, a new report says. New rules take effect next year, though.

By MSN Real Estate partner Apr 28, 2014 11:11AM

 © Image Source, Getty ImagesBy Hal M. Bundrick. MainStreet


The excitement of buying a home can be quickly diminished at the closing table. After all the open houses, negotiations and pre-moving preparations, buyers face a stack of loan documents that can total more than 100 pages, many of which they are seeing for the very first time. Errors, omissions and even last-minute changes to agreed-upon terms can haunt buyers anxious to get the keys to their new home.


In a survey of homebuyers, the Consumer Financial Protection Bureau (CFPB) found that 27 percent of consumers faced 11th-hour surprises at closing. "Even if consumers encountered discrepancies that result in unease at the closing table, they often felt pressured to sign documents during the allotted time in order to avoid risking delays or even losing the house," a CFPB report, Mortgage Closings Today, states. "In the words of one borrower, 'Since the loan documents showed up at the last minute, I had no choice but to sign, even though the terms were different than was promised.'"


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Much of the complexity can be attributed to the number of participants -- and their varied interests -- involved in the sale of a house; including the buyer, seller, real estate agent, settlement agent and lender. The CFPB notes that loan-closing packages are also complicated by federal, state, and local regulations that require numerous disclosures, as well as pages of disclaimers added by lenders as part of their risk-management processes.

In August of next year, new "Know Before You Owe" rules will require some closing information to be delivered to the borrower three business days before closing. Part of that package will be a new closing-disclosure form that combines the HUD-1 and Truth-in-Lending Act disclosure. It is similar to the loan estimate that borrowers receive upon application, making it easier to compare any changes in costs prior to closing. The CFPB has also issued new restrictions on which costs can change and by how much, hopefully limiting surprises at the closing table.


Another innovation that may reduce the anxiety and errors of a home-loan closing is a paperless, or near paperless, process called e-closing. Offering digital review of paperwork with embedded educational tools and earlier delivery, e-closings might help simplify the process and reduce errors.

"In an e-closing, documents can be electronically delivered by email or by the consumer accessing an online portal within the vendor platform," the CFPB report says. "Early delivery can give the consumer more time to read the documents and consult with family members or professionals, which will empower them to ask questions and play an active role at the closing. Second, electronic documents could provide an opportunity to embed educational tools that highlight key information or link to additional resources for consumers. Consumers would be able to reference these tools when reviewing the documents both before and during the closing."

Such e-closings are available today, but only by a limited number of providers, particularly small and medium-sized originators. According to a recent Xerox study, only 10 percent of mortgage-industry employees surveyed worked at institutions that offer electronic-signature closings. The CFPB is rolling out a pilot program later this year to test e-closing solutions in a further attempt to simplify and standardize the closing process.


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May 4, 2014 1:18PM

There are already laws in place to stop bait and switch.   The only thing that can change now is the rate until it is locked.   Fees cannot change more than a very small percentage from the original disclosure which is issued no more than three days after loan application.   Your loan can change when you do not qualify for the loan you applied for.  However then you get new disclosures long before loan documents also an explanation of the turn down.   A Realtor should be sure that your loan is approved and locked within the loan removal contingency period to further protect last minute surprises.   Never proceed with a transaction if you are not completely approved and locked prior to the loan contingency expiring.  Walk away.   Anyone who gamble and continue a transaction after loan contingency has expired without full loan approval gambles with their own financial well being.  I am a Real Estate Agent and Mortgage Broker and my clients are prepped ahead of time that if the loan approval and locks are not final at contingency removal they walk from the table and find another home.  As a mortgage broker I find time and again that lenders drag their feet on final approvals, however it is my responsibility to get a lock and final loan approval for the client or negotiate and extension of the loan removal contingency.   However,  a borrower/buyer should never go uncovered they should always be completely protected so as not to lose a deposit and not to feel pressured to take anything where they are not fully informed of the terms.

May 4, 2014 10:45AM
"E" closing are good when you move long distant. Not only do you get time to read the small print you print out your copies. The buyer is usually the King or Queen and the sellers pays the commission & taxes. Negotiations between buyer & sellers are normal business. The inspection & cost of items that fail to be repaired or replaced plus price of property. Getting a good deal is mandatory. Shop around.
May 4, 2014 7:26AM
Two words: Owner Financing.
Banks suck. With what I know, I'll NEVER use them.

Apr 29, 2014 7:56AM
I have had 4 mortgages and 3 of them changed at the last min.  On one, the lender actually tried to switch me to an adjustable rate!  Another, the price was 2500 more than agreed upon.  All three had me walking away from the table and like a miracle, they were corrected.  My last mortgage, I told everyone up front, if things are not right and not as promised, I walk.  Got my docs ahead of time, and everything went smoothly. 
Apr 29, 2014 7:27AM
I never want a mortgage again.  As soon as my home is paid-in-full (which will be very soon) I will start plowing away money towards purchasing a farmette with a little acreage.  I will wait-n-sacrifice-n-save to pay cash for it.  I hate/loathe/despise mortgages.  My daughter seeing my battle to "kill my mortgage" is the reason she's saved so hard to pay cash for a home--she wants nothing to do with a mortgage either.
Apr 29, 2014 4:57AM
Just another way for everyone to get a big chunk of pie from you, its all fixed, just like fica scores. who created the three companies for credit rating, who owns them, who makes the money from them, its not free someone pays somewhere down the line. bend over here comes another political screwing. CORAVETTE
Apr 29, 2014 4:55AM
I have seen many cases where the buyer/borrower must close/settle in less than three days following mortgage approval.  Will some provision be made to permit the buyer/borrower to waive the three day period if it is they who need to close.  Somehow, I see something simple like this falling through the cracks as the uninformed dictate to the informed.
Apr 29, 2014 4:50AM
I am a mobile closer I close 30 to 70 loans a month. The Guy at the table (me) unless a lawyer is not allowed to offer answers .ITS THE LAW> We can only explain what a document is .NO ADVISE! We have the customer call their agent if not comfortable.. It is the consumers responsibility to under stand what they are signing for . I do not pressure ANYONE to finish a closing .It has to be done FREE WILL!   Also as long as the deal is on the home in which they live they have 3 days to examine all the docs . 95% tell me they would not understand it anyway . Most never look at the docs again. only 1 in ten complain about anything . E docs would be nice BUTT!  I think even less would go back to read it over. The older folks would never bother. You would be surprised at the number of people who do not own a computer or internet connection. Getting The docs 3 days ahead of my arrival is a great idea but only a few would look them over . They are sick of the process
and want it behind them . By the way most refi s run up to 170 pages I am a happy camper when I see 100 or less. Quicken seems to have it down to an art  ave 72 Pages !   Reliable Notary Service
Apr 29, 2014 4:05AM
Um, no one is FORCING you to sign anything.  If you are STUPID enough to fall for that, then you DESERVE what you get.
Apr 29, 2014 2:04AM
First off, from experience, I can tell you that the closing paperwork is ludicrous, I, nor I am betting about 90% of those who have closed, really understand much more than yah, I have to make payments every month for 30 years at a specific amount.  Oh yes, and it details where and what the property is.  All the paperwork just helps to make the banks/lenders feel comfortable and the government gets their say so.  Bottom line is that I'll either pay it or I won't, and all that paperwork just costs me more money - ludicrous!  Something like five pages (truth in lending and property description) should be enough.
Apr 28, 2014 7:29PM
I work in banking compliance and there are already many rules about the terms not being able to change between the early disclosures (3 days after application) and closing. For example, fees can't increase by more than a certain percentage. And some of the final docs are required to be available a day prior to closing. I don't see how providing another set of the same disclosures 3 days prior to closing will help matters other than increase costs for the banks, which will be passed on the borrowers, and an increase in that dreaded stack of paperwork.
Apr 28, 2014 3:55PM
You would think all these last minute changes would be cleared before the closing date, if this happened with me the closing would be postponed or cancelled unless the faults were my responsibility. Period!
Apr 28, 2014 3:18PM
why do clsoings have to be always at a certain time of the month.....................??????
Apr 28, 2014 3:17PM

If the mortgage agreement isn't EXACTLY what you were promised, don't sign it.

But do sue EVERYONE involved with it for fraud.

'bait and switch' is illegal and you will have an easy win.

And then you actually have the cash to buy a decent house!

(I hate white collar criminals!)

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