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New Rules Give Buyers More Protection at Closing

By Kenneth R. Harney, Texas Association of Mortgage Brokers
Saturday, July 18, 2009

If you’re applying for a loan to purchase a primary or secondary home, or planning to refinance, you should be aware of a little-publicized new set of federal consumer-protection rules that takes effect July 30.

Among other key changes, the new Federal Reserve guidelines require lenders to give you initial disclosures of your mortgage costs within three business days of your loan application. If you don’t get them, you can pull the plug..

The rule also prohibits lenders from collecting any fees, except a reasonable charge for checking your credit, until you have been given the loan-cost disclosures. This means no more out-of-pocket, upfront application charges until you have received the truth-in-lending disclosures and an annual percentage rate (APR) calculation of those loan costs.

Since many mortgage brokers and lenders traditionally have collected fees covering appraisal, credit and various other charges at the time of application — sometimes amounting to hundreds of dollars — this will be a significant change in procedure for the lending industry.

The rule also prohibits quickie closings on loans by requiring a seven-day waiting period after applicants are handed their early disclosures or the disclosures are mailed. You will now have up to a week to think about the transaction and decide whether it’s right for you. Final truth-in-lending disclosures are due three business days before closing.

Here’s an even more sweeping change for applications on or after July 30: The new Fed rules require lenders to deliver a copy of the real estate appraisal to you three business days before the scheduled closing on the loan.

In the past, even though federal regulations guaranteed that consumers could request and obtain a copy of the appraisal, lenders and home buyers frequently ignored that right. In fact, many consumers had no knowledge of this right because no one in the home purchase, financing or settlement process told them about it.

Now, the timing of the loan closing itself — which is the financial ballgame for loan officers, real estate agents, and title and escrow officials — will be dependent upon your receipt of the appraisal in advance. The exception will be that the three-day rule can be waived if you don’t think receiving the appraisal is necessary.

Another significant change under the new rules: If the APR on the early truth-in-lending disclosure increases by more than one-eighth of a percentage point (0.125), the lender will be required to “redisclose” — provide you a corrected version and allow you an additional seven business days to consider the transaction before settlement.

What might cause the APR to increase following the initial, early disclosure? Lots of things. If you allowed your initial rate on the loan to float with the market but rates increased, you would need to get an amended truth-in-lending disclosure. Or if the lender got inaccurate estimates of costs from a third-party participant in the transaction such as the settlement or escrow company. Or if unexpected, 11th-hour junk fees materialize.

All of these events, which have been frequent sources of consumer complaints this decade, could force the lender to redisclose loan costs and set back timing for the settlement.

What are some of the likely repercussions of the Fed’s new mandates? First, the traditional approach of aiming in advance for a date-certain settlement target for home loan transactions almost certainly will be affected. Actual closing dates will be more closely tied to lenders’ and settlement agents’ accurate estimates and their ability to deliver disclosures and appraisals by the required dates. For example, if appraisers are backlogged and can’t produce valuation reports quickly enough, settlements will have to be postponed.

Second, the purposes of the rules are to afford consumers better access to and more time to consider key elements of what, for most people, are major financial transactions. There might be fewer instances of last-minute closing-date surprises on fees, where buyers are slammed with hundreds of dollars of charges they never expected. But nobody can say that for sure.

Finally, the rules may well trigger new waves of litigation if lenders and their business partners are not scrupulous in their compliance. There is an aggressive segment of the legal profession that specializes in going after banks and mortgage companies for truth-in-lending violations. Don’t be surprised if you hear of lawsuits seeking cancellation of mortgage deals because timing deadlines were not met or appraisals were not received.

As David Berenbaum, executive vice president of the National Community Reinvestment Coalition, put it in an e-mail comment: “Consumer advocates will closely monitor” compliance with the new Fed regulations, and the lending industry can expect “civil litigation against bad actors.”

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Making a Good Offer

When you’ve finally found your dream home, making an offer is the next step. Make sure you’re working with a buyer’s agent, so you know you have someone looking out for your best interests. A buyer’s agent will help get the best deal possible, assisting you with negotiations, paperwork, and the myriad other details involved buying your dream home.

When coming up with an offer amount, keep in mind that some sellers may get offended with an offer significantly lower than their asking price. Though their selling agent should counsel them not to let emotions get in the way, some people will see your low offer as a personal insult. That doesn’t mean you shouldn’t make an offer substantially lower than the asking price. Perhaps you think that’s the fair value of the property. Just know that you may not hear back from the seller.

Many times a seller receives more than one offer at a time, and it’s up to you and your buyer’s agent to make your offer look as attractive as possible. After coming up with your offer price, you must also determine how much earnest money will accompany your offer. This money is used to show the seller that you are serious about purchasing the home and acts as a “good faith” deposit.

There are other ways to make your offer attractive. Talk with your Texas REALTOR® about the best game plan for making your offer look at appealing as possible.

Texas Association of Realtors®

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Choosing your Real Estate Agent

Buyer/Seller Resources

10 Recommendations for Choosing your Texas Real Estate Agent

As a prospective homeowner, selecting the right real estate agent is critical. Your REALTOR® will keep you abreast of this rapidly changing industry, swings in market conditions, and the availability and demand for property inventory. Your agent also guards your legal interests when facing tough negotiations or confusing contracts.

The safest way to hire a strong real estate agent is to interview more than one specialist. Here are 10 tips to guide you:

Identify at least three (preferably five) real estate professionals.

• Look around your neighborhood. Is the same for-sale sign in every other yard? Call this REALTOR® and arrange an interview.
• Use the Internet. It’s easy to search for an Dallas area REALTOR® online.
• Ask a neighbor or friend. Who helped them buy their home? Which real estate agent in Dallas would they hire if they decided to buy?

Interview the real estate professionals you have identified. Having a conversation with the person is a good way to find out if your personalities and goals match. Here are things you want to ask:

• “Are you a REALTOR®?” You will have the best luck finding the right home if you work with a REALTOR®, not simply a real estate agent. REALTORS® are members of the National Association of Realtors. They are generally full-time agents who have committed financially, educationally and professionally to being an expert in the real estate industry.
• “How often will you notify me of new listings?” In some Texas markets, houses enter the market and sell within the first hour. You need a REALTOR® who is serious about finding a home you’ll love. Buyers should expect to hear from their agent whenever a home matching their description appears on the market.
• “How often can I expect to hear from you?” Just because your dream house isn’t on the market yet doesn’t mean you won’t have questions. Be sure to work out an arrangement with your REALTOR® from the beginning.
• “How quickly can I expect you to return phone calls?” You don’t want to be ignored. If the REALTOR® doesn’t have a callback policy (“You’ll hear back from me within two hours/30 minutes/before the day ends”), you may not get the service you expect.
• “Are you a full-time REALTOR®?” “Hobby agents” aren’t as capable of meeting your expectations because their attention is divided by other responsibilities. Limit your search to full-time real estate agents.
• “Who will you represent in my real estate transaction?” Depending on local laws, the REALTOR® representing you may be a subagent for the seller (not what you want as a buyer). Find an agent who can truly represent your interests without having to bow to another client. You may want to consider hiring a Buyers Agent.
• “Will you give me your honest feedback?” Avoid “yes-men.” If you can’t find your dream house because it simply doesn’t exist at the price you’ve quoted, you need more options. When you find a strong real estate agent, you get more out of each meeting.
• “How long have you actively worked in the area?” While the answer to this question shouldn’t necessarily be a deal-breaker, a REALTOR® who has worked in the area a long time may be more aware of properties that match your description.

Compare interview notes.

Think about each agent, and decide which one is right for you. You should choose someone aggressive, but who doesn’t make you feel anxious or pressured.

Experience pays.

Experienced real estate agents often earn designations that separate them from the pack. These designations are earned through training that helps the agent become a specialist in certain areas. Pay attention to agents who have designations listed after their names on business cards. Specifically ask the agent what each one means.

Find a REALTOR® who is savvy about technology.

Through the online tools available to agents these days, you can expect nearly immediate e-mails about new property listings and quick replies to your queries.

Ask for references from your Texas REALTOR®.

This shouldn’t be a big deal; it’s a last-step investigation that could confirm or reject your impression of the agent.

Before signing a contract, know that the term “Disclosed Dual Agent” often means that the real estate agency does not represent your interests 100 percent.

Try using a Buyers Agent to represent you.

Buyer agency agreements are common, but be careful.

What if the REALTOR® doesn’t follow up with you? What if you don’t get along? What if the agent doesn’t understand your needs? Remember that a buyer agency agreement is negotiable, and you can help negotiate the specific terms.

Select a strong negotiator.

Ask your REALTOR® whether he or she has ever been in a tough negotiation and how he or she negotiated a fair price.

Talk money.

Usually the seller foots the bill for a real estate professional’s commission, but don’t assume this will be the case.  Ask point-blank what your financial obligations are throughout the process. Your real estate agent has the knowledge and experience to provide you with a smooth, hassle-free transaction.