December 18, 2015

Process junkies take over mortgages with 1900 pages of rules

Lenders and brokers say just about everything is taking longer, and the costs to home buyers are moving up.

Washington Post, October - On Oct. 3, under a directive from the federal Consumer Financial Protection Bureau, lenders, title insurers and settlement agents were required to comply with a new, nearly 1,900-page rule book designed to improve transparency and accuracy in real estate and mortgage transactions for home buyers and refinancers. The regulations impose potentially heavy penalties on lenders that get their cost estimates wrong or fail to deliver accurate disclosures to consumers on prescribed timelines at application and closing.

Though the new disclosures are widely regarded as improvements over the ones they replaced — the traditional good-faith estimates, truth in lending and HUD-1 settlement forms — there have been concerns for months that the reformed process would increase the typical time span between loan application and the final closing.

What has received less attention, however, are the impacts of longer timelines on how much consumers pay to do the deal. Now those increases are coming into clearer focus, as lenders take new applications and quote rates and fees.

In Huntington Beach, Calif., Dennis Smith, co-owner and broker at Stratis Financial, says that in order to cope with the strict compliance requirements of the new disclosure rules, he has had to hire another staff person. He’s not yet certain how this additional expense will factor into individual borrowers’ fees — that will depend on application volume and “market factors moving forward,” he said — but one can assume the added salary and benefits will be reflected in charges somewhere.

Michael Fratantoni, chief economist for the Mortgage Bankers Association, says the expenses added by the new settlement rules come on top of a long series of federal regulatory changes in the past several years that have pushed the cost of originating a typical mortgage from $4,500 to $7,000. “A lot of it is personnel, quality control, spending on new technology” and reprogramming systems.

So what can a home buyer do to limit some of these costs? Probably not a lot, except shop vigorously and compare lender fees and lock policies. As time goes on and lenders and settlement agents gain experience in managing deadlines under the new rules, maybe 30-day closings will become more common again, making longer locks unnecessary. For now, though, you’re likely to see higher, not lower, charges.

1 comment:

Anonymous said...

That's what happens when poor-quality lawyers are involved.

Good quality lawyers would be able to specify it on a page or two:

If, by the "reasonable person" test, your valuation to have been off by more than 10% or $1000 whichever was less, you lose your right to be paid.

If, by the "reasonable person" test you appear to have willfully inflated the valuation as above, you will be charged with felony fraud.