If You Thought QM Was Complicated, Wait 'Til You See This
When the final rule was published to combine the Real Estate Settlement Procedures Act and Truth in Lending Act disclosures, most of us set it aside because the qualified mortgage rule was taking up way too much brain space. QM is still consuming everything but at least the information is somewhat sorted. Not resolved, just sorted. Nonetheless, we can’t ignore the next elephant in the room: The combined disclosure regulation. This regulation will have a more dramatic impact on operations and vendors than the QM. We learned a lot of lessons with QM and need to apply them, and more, in the next round of regulatory implementation. It is 1,600 pages! Ability-to-repay/QM was a mere 800.
To prepare for a complete overhaul of a form that has been the foundation of loan closings for almost 40 years, I have two communication tips that will improve borrower relations and closing readiness:
1) Conversations with the borrower about the five-plus pages of financial information on the closing disclosure (it's longer for an adjustable-rate mortgage loan) will need to be occurring long before the big day. One of the best mortgage brokers I know will review every HUD-1 with a client in advance. I believe this service will be a game changer in the era of combined disclosures. Originators with the skill to review all components of the transaction and provide closing readiness services will leave a lasting impression on a customer.
2) Adjust procedures and expectations to have the completed closing disclosure available for borrower review at least 24 hours in advance of closing and have a mortgage company representative review the form with the borrower. Don't leave the final closing disclosure discussion on the shoulders of the title agent. I am confident that most title agents will do an excellent job of covering the disclosure contents. However, the final rule did not include the requirement to follow a script at closing, as was floated in the proposal.
Tip No. 1 has the originator review what to expect on the closing disclosure early in the process. Tip No. 2, although not required by law, will save a lot of fire drills. Take today's number of pre HUD-1 review problems and triple it (an educated ballpark with three more pages added). This tip not only gives the closing agent the time needed but also sets a prepared borrower at the table.
Start planning now to adjust procedures by year end. Then you'll be ready early 2015 to focus on the loan origination system details for creating the forms. A good consulting firm can offer many ideas and services to ensure implementation of the new combined disclosures is a smooth transition for any type of mortgage operation.
As a side note, I'll just apologize now for continuing to refer to a HUD-1 instead of a closing disclosure. It's hard to change a 30-year-old habit!