After mortgage lending abuses almost led to a world-wide economic meltdown when the recession of 2008 hit, Congress stepped in and came up with new regulations to govern mortgage lending.
You may have heard of the new law that governs these changes – it’s the Dodd-Frank financial reform law. In addition to reining in troublemakers on the lending side, the law also seeks to make it easier for borrowers to make sense of the (many!) documents associated with getting a mortgage. The goal: To have borrowers be very clear on how much their mortgage is actually costing them.
Which is all great. Every good lender wants bad lenders out of the business. They hurt everyone. And anything that helps borrowers feel comfortable that they understand everything about a huge financial commitment like a mortgage – that is obviously a plus.
Unfortunately, it looks like one part of the new law is going to make it take longer for many borrowers to get to their closing – longer than the currently pretty common 30 days. And it may throw a real monkey-wrench into the process for people who want to do back-to-back closings, selling an old home and buying a new one on the same day.
Here’s what you need to know. It used to be that lenders could give “good faith estimates” of costs and adjustments were made at the closing.
Now lenders have to give borrowers one document with all the fees and costs associated with the loan 3 days before the closing for the borrower’s review.
If there’s a change in the documents for any reason (other than typographical errors), the lender must correct the documents and provide them 3 days in advance to the borrower for another review. Another change would necessitate another 3 day review. Etcetera and etcetera. And these 3 day review periods are required by law – the borrower cannot waive them.
Something else to bear in mind: According to an article in the Boston Globe, borrowers “should also be prepared to seek extensions on their interest rate locks because of possible delays.”
What does it all boil down to? If you’re going to be looking for a new mortgage in the months to come, you really want to be having “What does this look like for me?” discussions with your lender from Day 1 about their expectations on the timing of your closing after Dodd-Frank. Ask how it might affect your rate lock too.
Even if you’re an “old hand” at getting mortgages, you’re going to want to allow yourself more time. If you’re planning a complicated sell & then buy deal, you should be extra up-front about that with your lender so that you don’t end up selling your old home, having to wait unexpectedly to close on the new one and then getting stuck spending a few days or weeks in a hotel waiting for the 2nd closing to happen. (Which could also happen if the person you’re buying from runs into a delay!)
Overall, the ideas behind this legislation are positive. It’s good to make all lenders treat borrowers the way good lenders always have – honestly and fairly. It will be beneficial if borrowers really feel like they understand what they’re getting into. And no one will feel forced at a closing to sign documents they didn’t expect and don’t understand.
It’s just going to take more time. That’s the “new normal.” If you’re getting ready to buy a new home, you want to be prepared for that.
Nick Maffeo is the President & CEO of Canton Co-operative Bank in Canton. “Smart About Money” is a regular column he writes for the Canton Citizen. Have a financial question you’d like to ask? Email to email@example.com.