How Disclosure Tolerances will Change the Way Consumers Shop for Settlement Services

There are big changes coming to real estate closings thanks to the updates to the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). These changes to timelines, processes, and requirements are the largest the industry has seen in 40 years. They will affect the way consumers shop for a settlement company and its services. Here are some of the things you can expect:

Good Faith Isn’t Good Enough

In the past, settlement companies put together an estimate on closing costs. As long as the final number was in the ballpark, it was considered in good faith. Tolerances, however, did not allow for increased closing costs when the disclosed cost of the services turned out to be lower than the actual cost. Everyone from the lender, to the settlement team, to the buyer knew the number could fluctuate. This was widely accepted. No longer.

TILA/RESPA dictates that some fees are now subject to zero tolerance, meaning no changes can take place without notification.

Any change to the following fees after the estimate is given, must be presented to the buyer as a change in the agreement. There will be zero tolerance on:

• Fees to the mortgage broker
• Affiliate fees for a mortgage broker or creditor
• Fees paid to a creditor
• Taxes to transfer the property
• Fees paid to a third-party

How This Affects the Consumer and the Closing Process

This new stipulation means that a change must be presented to the buyer and this will add significant time to the sign-off process. The buyer will be fully aware of every dollar and cent but they will also know changes can delay the closing process significantly.

Realtors will also need to be aware of the changes in the review process.

The simplification of the four loan forms into two disclosures will place the important numbers in easy-to-understand transaction tables, which will help consumers shop for loans.

While they’re being given greater insight into the process, consumers will need to be more selective on their settlement team as now a simple change in fees can delay the closing by 7 days, the amount of time they have to review it.

These changes affect the process of closing to the extent that industry experts are expecting a slowdown in closings for the first six months after the August 1 implementation. Selecting a closing company that is ready to handle these changes and is already practicing the new workflow, is essential to closing during your preferred window of time.

How it Affects Banks and Lenders

For lenders these changes are being labeled “an industry game changer.” With 400 regulatory citation changes, these are more than mere document refreshers. TILA/RESPA changes the technology, business processes, and timelines.

These accommodations cannot be made overnight. A plan must be implemented as lenders will need to run two systems — one to deal with the new requirements, and one to deal with existing transactions since the new rules do not apply to all types of loans (HELOCS and reverse mortgages are exempt).

Banks and lenders can also expect increased competition as consumers shop their loans in greater numbers.

If you’re looking for a title company that has always practiced transparency and put its customers first, look no further than Bay National Title Company. We’ve been monitoring these changes since they were announced and are fully able to handle them long before this summer’s implementation. Call us today to feel the difference in our closings.