By Aldo Svaldi
The Denver Post
Starting Saturday, purchasing a home with a mortgage will come with a whole new set of disclosures and different procedures for closing a sale.
Bid farewell to the good faith estimate, two truth-in-lending forms and the complicated HUD-1. Replacing them are a simpler loan estimate and closing disclosure under the ” Know Before You Owe” program developed by the federal Consumer Financial Protection Bureau.
“It will be better for borrowers overall and for the industry in the long run,” said Jerra Ryan, who has dedicated 4,000 hours to the changes as vice president of compliance at Cherry Creek Mortgage in Denver.
For starters, the information on the loan estimate now lines up with the closing disclosure, making it easier for consumers to track costs from start to finish.
Standardization means consumers can directly compare different loan offers, which should help lower costs over time.
“If you get those loan offers side by side, it is probably going to be pretty clear which is the best loan offer for you,” said Holden Lewis, a mortgage analyst with Bankrate.com.
With interest rates and loan terms fairly competitive, variations usually come in the added fees and closing costs, Lewis said. Padding, while not eliminated, will be easier to spot.
Another rule change requires the final disclosure be in a consumer’s hand three days before closing, allowing ample time for a review.
“There is less of a chance that closing will get delayed because of a change,” Ryan said.
Among the downsides, at least initially, are longer closing times as everyone gets accustomed to the new system and higher costs.
“You should be writing 45-day contracts,” Colorado Division of Real Estate spokesman Eric Turner said.
Consumers also need to avoid resetting the three-day disclosure window, especially if a closing is “stacked,” or tied to another one, which is the case about half the time in Colorado.
An example would be a borrower buying a bunch of furniture on a new store credit card before completing a home purchase, Lewis said.
Lenders pull a fresh credit report right before the closing, and any moves that lower a borrower’s credit score could push up the interest rate. An increase above 0.125 percent would require a new three-day disclosure period.
Ryan called those fears overblown. Only a few clearly defined situations reset the disclosure clock, he said.
Those don’t include a seller providing additional money to fix problems found on a walk-through.
The changes have taken years to craft, and implementation — including new software systems and training — will cost title companies, lenders and real estate brokers billions of dollars that could be passed to consumers, Ryan said.
But the new rules have fostered unprecedented cooperation among the three groups, which should make for smoother closings, Ryan said.
HUD, as far back as 1996, tried to simplify disclosures, and the bureau started focus groups on the forms in 2011.
Lewis said the new disclosures are a case where a government agency actually managed to clarify rather than complicate.
“I always hated the HUD-1 and thought it was a horrible document,” Lewis said.
Borrowers who started a loan under the old system will close under the previous disclosures. But starting Saturday new disclosures will accompany new loan offers.