While the new Closing Disclosure rules set out by the Consumer Financial Protection Bureau (“CFPB”) have been delayed until October 1st, the question of whether the new closing procedures will delay their closing is still an issue for many new home buyers. The answer to the this question will heavily depend on whether the new 3 day review period is triggered by changes in the home buyer’s loan package.
Under the new real estate Closing Disclosures for residential properties, a Federally mandated 3 day review is necessary for “material changes” in the loan underlying that purchase. The CFPB claims that Only THREE changes require a new 3-day review:
- The APR (annual percentage rate) increases by more than 1/8 of a percent for fixed-rate loans or 1/4 of a percent for adjustable loans;
- A prepayment penalty is added, making it expensive to refinance or sell; or
- The basic loan product changes, such as a switch from fixed rate to adjustable interest rate or to a loan with interest-only payments.
The logic behind requiring a mandatory review for such material changes seems obvious. These changes will have an effect on the monthly payments and other important considerations when taking on the burden of a home loan as the borrower. The Borrower, or home buyer, will therefore need counsel from their attorney as to the consequences of these material changes in their loan structure.
Other changes, while effecting the Closing Disclosure, will have to be shown on the Closing Disclosure Form, but are not considered of a sufficiently material nature by the CFPB to necessitate a 3 day review. These include, but are not limited to:
- Unexpected discoveries on a walk-through such as a broken refrigerator or a missing stove, even if they require seller credits to the buyer.
- Most changes to payments made at closing, including the amount of the real estate commission, taxes and utilities proration, and the amount paid into escrow.
- Typos found at the closing table.
Home buyers serviced by competent loan officer and mortgage underwriters, and represented by experienced real estate attorneys, can rest assured that their closing will run as smooth as possible under the current Federal guidelines.