Big Changes Coming to Closing Process (Patrick W. Curry Commentary)

Patrick W. Curry

On Aug. 1, the way lenders, real estate agents and title companies work together will change completely. If you’re not prepared for the upcoming changes, you’ll run the risk of delayed closings, lost trust with customers or other challenges brought by new federal regulations.

Those statements might seem dramatic, but everything in the closing process — from the timing of the transaction to how information is shared to what language we use when closing — will change later this year. Preparing now will ensure that you remain relevant and that you’ll have the best tools for gaining and retaining customer relationships.

After the mortgage meltdown of 2005-08, the Dodd-Frank Wall Street Reform & Consumer Protection Act created the Consumer Financial Protection Bureau with the express purpose of protecting the consumer. One directive of the CFPB was to simplify and improve customer understanding of the closing process. The Dodd-Frank Act required the CFPB to combine separate, federally mandated forms used in the closing process (the Truth in Lending form, Good Faith Estimate form and HUD-1 form) into one easy-to-read document. The logic behind this consolidation is that one form is much easier for the consumer to understand.

The CFPB’s attempt to simplify the closing process is admirable; however, the changes are wreaking havoc on the lending and closing industries. The new forms require software updates for title companies and banks to work together in lockstep and for real estate contracts to take into effect the new closing timeline.

Timing

The days of the last-second closing with a lender involved are gone (sort of). For title companies, the new regulations are welcome, as they should improve customer service dramatically. As humans tend to do, many lenders procrastinate until the very last second before closing. The CFPB recognized this last-second closing push and determined that consumers did not have enough time to review documents and ask questions.

To address this, the CFPB proposed a three-day period before closing. However, in the world of government math, three days really means seven days. This is a critical point, and one that all parties to the transaction should understand. Let’s add it up:

• Three days — the CFPB mandate for consumers to review their loan information.
• Three days — the CFPB mandates that forms must be delivered to the consumer. Generally, most lenders will mail forms for security and consistency. If mail is used, then the government allows three days for delivery.
• One day — the lender, real estate agent and title company will agree on final forms.

Add up those days and the seven days before the actual closing, and lenders, real estate agents and title companies will be scrambling to finalize closing documents. The industry will move to a “pre-close” seven days before the actual closing. This new process, while more cumbersome, will be welcome as the final presentation of the documents will be much more organized. The seven-day closing rule is critical to remember when completing real estate contracts and scheduling closings.

Language

This may seem comical, but the CFPB is trying to change the way we talk about our business. Here is a quick vocabulary lesson:

• “Closing” is now to be termed “consummation.”
• “Lender” is now “creditor.”
• “Customer” is now “consumer.”
• The “HUD” will now be termed the “closing disclosure” (CD).

Preparation

Those in the industry can take steps to prepare for these changes.

First and foremost, educate yourself, your staff and your customers. The more you know about the new regulations, the better prepared and confident you will appear to be to your consumer. Look for upcoming educational opportunities and attend as many as possible.

Next, train your staff members and ensure they’re prepared for the changes.

Finally, partner with vendors that understand the upcoming changes.

All of the rules are changing this August, and we need to be prepared.

Patrick W. Curry is the CEO and president of Waco Title Co., which has 17 offices in Arkansas and Missouri. He can be reached at PCurry@WacoTitle.com.