Effective October 3, 2015 changes are being made to mortgage application rules. Most changes are about how consumers are presented terms of the mortgages they are being offered. The changes are required by the 2010 Dodd-Frank financial law. One key change is that consumers must be given the final terms of the mortgage at least three days before signing and closing the loan. If borrowers request and are granted changes to the original terms, it will trigger another three day waiting period after the new terms are given to the borrower.
Delays are initially expected to frustrate real estate professionals and consumers as they adjust to the new rules. In many markets, it's common to take about 30 days to close a mortgage. According to the American Bankers Association, this wait period could expand to between 45 and 60 days as lenders learn and adjust to the new rules.
Among the other changes is how the terms are presented to the borrower. Before the change, lenders had more flexibility is how they labeled and categorized information like interest rates and fees. Now, a standard form will be used that is intended to make it simpler for borrowers to compare offers from multiple lenders. The form was tested with consumer focus groups and went through several revisions to make it as easily comprehensible as possible.
The changes are intended to prevent borrowers from agreeing to loan terms that they don't understand such as teaser interest rates that later balloon into payments they cannot afford. Also, borrowers should be able to see if the final loan terms differ significantly from the original offer. The changes should make it easier for borrowers to see how much the loan will cost over the first five years.
Despite having years to prepare for these changes, there are likely to be initial problems with new software and real estate professionals understanding of the changes. The National Association of Realtors is recommending that real estate agents extend contracts by 15 days to accommodate the changes. Mortgage applications signed before October 3 are not governed under the new regulations.
The Consumer Financial Protection Bureau claims that only major changes in loan terms, such as a significant interest rate increase or a change from a fixed rate to adjustable will require a revised disclosure that triggers another three day waiting period.
It's likely to take until the end of October or early November, when loans written under these new terms start closing, before the real impacts become known. Some lenders are expected to limit or delay the availability of more complex loan types while the new rules are being implemented.
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Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for seven years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest. in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.