Thursday, October 1st, 2015
Mortgage lenders and real-estate agents are bracing for Saturday’s implementation of a five-year-old law that has forced them to overhaul the way they process sales.
The changes, prompted by the 2010 Dodd-Frank financial law, are meant to help consumers better understand the terms of their mortgages before they sign the dotted line.
But some in the real-estate industry worry that the rest of the year could be marked by delayed closings, frustrated borrowers and confused real-estate professionals as they adjust to the new rules.
At heart, the changes simplify forms long required by the federal government that disclose loan terms, such as a mortgage’s interest rate and prepayment penalties. The rules also require that consumers see the final terms at least three business days before closing, a change meant to ensure they have time to understand what they’re agreeing to.
The reform is meant to prevent what occurred during the housing boom, when some borrowers agreed to loan terms they later found they didn’t understand, such as low initial interest rates known as teasers, loan balances that could increase over time and balloon payments due after a certain number of years.
Few lenders now make loans with the most exotic loan terms, but the Consumer Financial Protection Bureau, which is enforcing the changes, says the new forms will ensure borrowers have a chance to understand what they’re getting into before they sign.
Despite having a long time to prepare, some in the real-estate industry are worried that technology snafus could crop up in the days after implementation. The National Association of Realtors is advising real-estate agents to extend contracts by around 15 days in anticipation of delays in some home closings.