New Forms Can Help You Save on Closing Costs

In October, new forms designed by the Consumer Finance Protection Bureau to help borrowers better understand their closing costs went into effect. These are designed to make it easier for you to save by providing binding estimates far enough in advance of closing that you can shop for services yourself.

Officially called Loan Estimate and Closing Disclosure forms, but also known as “TRID” (for TILA-RESPA Integrated Disclosure), the new forms combine elements of two laws, Truth-in-Lending and the Real Estate Settlement Procedures Act. They eliminated duplicate paperwork and replaced it with just two forms on mortgage and closing costs—one that lenders must send borrowers within three days of applying for a mortgage and a second that is due three days before the closing data.


Estimate of all your closing costs

The first form details the kind of loan you’re taking out, including rate, term, monthly payment, fixed or fixed or adjustable rate. It will state whether there’s a prepayment or late payment penalty, whether the rate can be locked, whether you are paying points, and whether you’ll need to take out mortgage insurance. It will include taxes and other hard costs that will not vary.

The Loan Estimate also will include estimates for two kinds of closing services provided by third party vendors—those the lender choses, like the appraiser, and those you select, like title insurance and settlement services. These estimates must be accurate within 10 percent of the final cost, or the lender must make up the difference.

If you think the loan terms and closing costs are too high, this is your chance to shop around. Apply to a few other lenders to see how they compare. Some charge lower rates by making up the different in higher fees. Again, be sure you understand exactly what the estimates say. If rates, terms, payments or, loan types differ significantly, make sure you know why.

How to save: the basics

Once you have chosen a lender, focus your attention on the third party services that you can hire. You can shop for any of the services listed on section C of page 2 of your Loan Estimate form. Even though you will not be liable for paying more than ten percent of the estimates provided by your lender, your chosen lender may or may not have done a good job of finding a cost effective provider.

Along with the Loan Estimate, the lender should provide you with a list of approved providers for each of these services. You can choose one of the providers on the list. You can also look for your own providers, but check with your lender about any not on the list. There may be a reason your lender doesn’t recommend them.

For most borrowers, title insurance and settlement service are the two categories the greatest opportunities to shop and save.

Saving on title insurance

Lenders require you to take out title insurance to protect their interests. When shopping for title insurance, you should decide in advance whether you want coverage for yourself as well (see Do You Really Need Owners’ Title Insurance?). If you’re refinancing and bought ownership coverage when you first bought your home, it will still be intact and you don’t need to worry about buying ownership coverage again.

Title insurance is highly regulated at the state level and your opportunities to save will vary greatly depending upon where you live. In some states, you will find that insurers’ costs vary little one from another. In other states, you might be able to save by choosing a competitively priced product or a from an online title company.

In addition to title, settlement services include preparing all documents, signing, and post-closing review of the loan package. Often the same company will provide title and settlement services in the same package.

Choose your closing service providers and notify your lender so that the third party providers you choose can be included in his final calculation of all closing costs.

source:  totalmortgage.com

New Closing Forms Encourage Shopping for Services

If you’re in the process of looking for a home and you expect to close after October 1, 2015, you may be one of the first to use new mortgage disclosure forms that make it easier to save on closing costs.


Over the past two years, the Consumer Finance Protection Bureau has developed new forms required by the TILA and RESPA acts. TILA-RESPA stands for Truth in Lending Act and Real Estate Settlement Procedures Act, two federal laws that govern real estate transactions. The new forms are designed to reduce paperwork and help consumers better understand their options on closing costs, choose the deal that’s best for them, and avoid costly surprises at the closing table. They replace two different forms that contained duplicative and sometimes overlapping information.

The required loan documentation consists of two new forms: the Loan Estimate and the Closing Disclosure to ensure compliance.

The Loan Estimate. This form must be provided to borrowers within three business days after they submit a loan application. It replaces the early Truth in Lending statement and the Good Faith Estimate, and provides a summary of the key loan terms, including monthly payments and estimated loan, closing costs, title insurance, origination costs, appraisal, recording taxes, and settlement services. Consumers can use this new form to compare the costs and features of different loans.

The Closing Disclosure. This document provides a detailed accounting of the transaction and is sent to borrowers three business days before closing. It replaces the final Truth in Lending statement and the HUD-1 settlement statement.

Though the CFPB conducted more than two years of extensive research, testing, and review to find out how to create mortgage disclosures that do what the law intended them to do, the changes have generated concern and criticism from real estate agents and lenders. Some argue that they haven’t had time to make changes in the software programs they use to prepare the information.

Some of their other concerns are:

Not enough time to verify estimates. “What the CFPB is doing [by mandating the three-business-day deadline] is forcing lenders to give disclosures based on information that is unverified. The problem is that three days after an application is received, the lender doesn’t even know what loan program the borrower belongs in. Further, they don’t even know yet if the income figures the borrower provided are accurate,” says one lender.

The CFPB allows lenders can provide “re-disclosures” to report changes in the initial estimates, but that may negate the value of the three-day disclosure and raise questions about the need for speed.

Lenders have a similar concern with meeting the requirement that the new Closing Disclosure form be received by the borrower no more than three business days prior to the closing.

Major software changes. Lenders rely on loan origination systems or software platforms to underwrite loan sand prepare critical documents like the new closing forms. The new forms require major changes in software, and many lenders have been afraid they will not be ready or able to take loan applications in time for the launch of the new forms.

According to the CFPB’s own estimates, implementing this new process will cost the settlement services industry $67.8 million over the next five years. It will cost lenders $207 million per year for the next five. That brings the total price tag for implementation to more than $1.3 billion.

No last minute negotiations or changes at the closing table. Three days before settlement the lender may not know every detail or final disclosure. Further, the negotiations between seller and buyer may still be open, so how can a lender provide an accurate disclosure? The only answer is to require all negotiations be completed in time to be included in the final Closing Disclosure.

Given the possibility of changes triggering another waiting period or a last-minute change requiring lender approval, Realtors should assume it will take an additional 15 days to complete a closing, say analysts at the National Association of Realtors. That means if closings in your state typically take 30 days, allow 45 days. Over time, as the industry adjusts to the changes, those additional days might no longer be necessary.

With nearly half the mortgage industry unprepared for the original August 1, 2015 start date for the new forms, the CFPB has delayed implementation to give the real estate industry two more months to adjust to the changes.

source: totalmortgage.com

You Can Get Interest-Only Mortgages from Mortgage Brokers Again

Party like it’s 2006! Mortgage brokers are now able to peddle interest-only mortgages to qualified borrowers nationwide.

Oh wait, that last part about being qualified isn’t really reminiscent of 2006, but I’ll get to that in a moment.

This week, United Wholesale Mortgage announced a new offering, interest-only mortgages, those which happen to fall outside the ever-important Qualified Mortgage (QM) rule.

That means they’re pretty hard to come by these days, especially via a smaller bank that isn’t dealing in jumbo loans to wealthy clientele.


UWM also happens to be a wholesale mortgage lender, meaning they work with mortgage brokers who connect with homeowners.

 Here We Go Again?


Both mortgage brokers and exotic loans types like interest-only mortgages were blamed for the most recent housing crisis, but this time things seem to be a little different, at least for now.

The lender, which claims to be “one of the nation’s largest and fastest-growing wholesale lenders,” has some pretty tough requirements attached to the loans.

For one, you need a minimum FICO score of 720, so there certainly won’t be any subprime interest-only stuff floating around.

And perhaps more significantly, you need to bring at least 20% for a down payment, as the max LTV is 80% on this new program.

That’s certainly important, given the fact that an interest-only loan only pays off interest, no principal. So if home prices are flat, or worse, fall, the borrower could wind up with little to no equity to serve as a buffer for the lender in the case of default.

The program also calls for a max DTI ratio of 42%, strangely one percentage point lower than the max DTI on QM loans.

So one might say it’s quite a bit different this time around, even if it’s still an interest-only mortgage.


Not Your Uncle’s Interest-Only Mortgage


During the lead up to the crisis, it was common to see IO loans with no money down that only required subprime credit scores. Obviously lending like that when home prices were peaking was a recipe for disaster.

Today, UWM sees the offering as a way for “savvy” homeowners “to save additional discretionary income.”

In other words, they can afford a fully amortizing mortgage, but they want to pay interest-only so they can put their money elsewhere.

There’s no problem with that, so long as the borrower is actually savvy and knows what they’re getting into. And also has a way to get out of it if things don’t pan out.

Brokers should get a competitive boost as well by gaining access to a wider product range to offer borrowers.

For the record, their IO product is just like the stuff that came before it – a 10-year IO period followed by a fully amortizing 20-year payback period.

That means monthly mortgage payments will jump once the initial 10 years are up, though if these borrowers are truly qualified, they should be able to handle it. Or simply refinance or sell before that time is up.

In any case, it’s definitely interesting to see lenders dipping their toes back into the interest-only pool, especially seeing that the Consumer Finance Protection Bureau refers to IO loans as “toxic.”

source: thetruthaboutmortgage.com