How to Navigate the New Closing Rules

On Oct. 3, the Consumer Financial Protection Bureau (CFPB) instituted new rules regarding disclosures under the Truth in Lending Act and Real Estate Settlement Procedures Act that will affect all home builders, particularly those with a real estate lending arm.

Under the new procedures as a result of the Dodd Frank Act, four documents are now merged into two. The Good Faith Estimate and Truth in Lending disclosures were eliminated and combined into a new single Loan Estimate form, or “LE.”

In addition, the final Truth in Lending Disclosure and HUD-1 Settlement Statement were replaced by the Closing Disclosure, or “CD.”

What Do These Changes Mean?

Under the new rule, the biggest change is that the Closing Disclosure must be provided to the consumer a full three days prior to the closing, and if there are changes during that 72-hour period, the closing could be delayed.

Under the previous rules, the HUD-1 Settlement Statement could be presented to the buyer on the day of closing and any changes to the statement could have occurred during the loan closing.

In addition, the new rules stipulate that the Loan Estimate must be delivered to the prospective buyer no later than three business days after receiving the application.

Changes Aimed at Helping Consumers

These new rules are intended to streamline the loan application process and make it easier for consumers to understand by clearly spelling out the most relevant details all on one page – the interest rate of the mortgage loan, the amount of the monthly payments and a listing of all the closing costs.

For consumers applying for adjustable rate mortgages, the documents will explain how their interest rate and future monthly payments could change based on certain factors.

During the rulemaking process, NAHB was actively involved by submitting comment letters, both individually and with coalition partners, urging the CFPB to ensure that any changes that would make it easier for consumers to understand and comply with the settlement process would not place any undue burdens on builders, lenders and other housing professionals. 

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