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.
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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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.
Banks suck. With what I know, I'll NEVER use them.
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!)