Buying and selling a home is a process often fraught with anxiety, as prices are negotiated, financing is arranged, and all the i’s are carefully dotted and t’s precisely crossed. The process culminates in the closing, during which the papers are signed and money and keys are exchanged.
Not so fast.
New TILA/RESPA regulations (Truth in Lending Act/Real Estate Settlement Procedures Act) go into effect August 1, which will enable buyers to see the financial details three days in advance. Where minor adjustments can be made on the fly now, the mandatory three-day waiting period means changes will bring things to a sudden halt.
Chris Dakoske, a mortgage expert with Chemical Bank in Traverse City, believes the legislation is well-intentioned, but he said the jury is out on if that’s how it will be received when all is said and done. “It’s going to be a big, big change for the real estate industry,” said Dakoske.
He said part of what is driving the change is a desire to get the closing information into the hands of the consumer more quickly. “The closing statement – why is it always so last-minute? I think that’s part of what this is supposed to address,” he said.
The regulations are at least in part a reaction to the bursting of the housing bubble in 2007-08. When prices collapsed, homeowners suddenly found themselves underwater and foreclosures reached all-time highs. Many in the industry believe the pendulum has now swung too far the other direction.
“Banks have become so risk-averse,” said Kim Pontius, executive vice president of the Traverse Area Association of Realtors (TAAR). “We’re concerned about what this will do to transactions.”
Bill Holmes, vice president for northern Michigan sales with Front Street Mortgage, said it’s important for those in the industry to know about it and understand it, so they can inform buyers and sellers. “The average consumer has no idea anything is going on,” he said.
Dennis Pearsall called the legislation “potentially problematic.” As the president of Real Estate One for northern Michigan, he is responsible for introducing and explaining the new regulations to 135 agents in ten offices across the region.
“I’m presented with the challenge with not a lot of time,” Pearsall said. “We feel it’s important to get out in front of it.”
Realtors said the timing could hardly be worse. Spring and early summer are prime time for listing and selling real estate, meaning the August 1 deadline is squarely in the middle of the closing season.
Rob Serbin of Serbin Real Estate in Glen Arbor is one of those dismayed at the timing. He said he can’t afford to not be on top of his business and doesn’t have time to study all the ins and outs of the regulations. He speaks for many when he asks, “Why put it in place in August?”
Pontius said the National Association of Realtors is continuing to try to work with those overseeing the industry to mitigate the impact, whether that means delaying its implementation or starting off with a probationary period. “To implement it at the time when we are our busiest – the opportunity for liability is high,” he said.
Charity Anderson of Lighthouse Title said there has to be more communication between realtors, consumers and lenders. “A lot of time we get closing documents on the same day as the closing,” she said.
That won’t work under the new rules. “I think the key is going to be awareness and communication,” she said. “The realtors good at asking questions are the ones who are going to get through it.”
Dakoske and Holmes think some of the consequences have yet to be fully thought out. For example, occupancy is often attendant upon closing. But if the closing is delayed, that means buyers can’t move in, and sellers may have to rethink moving out. “Possession dates may not be at closing,” said Holmes.
The ripple effects will spread beyond buyers and sellers. “Moving companies may be highly impacted,” Dakoske said.
What of volatile interest rates? Holmes said if the annual percentage rate goes up more than one-eighth of a percent, it may mean re-disclosing … and a three-day delay.
Dakoske sees closings taking longer in general. What was once a 30-day closing may become 45, and 45 may turn into 60. “People better prepare for additional time,” he said.
There are significant penalties for those who don’t follow the rules. “There’s virtually no latitude for mistakes or shortcuts,” Pontius said. Those penalties can range from fines of $5,000 to $1 million, depending on the situation, and those facing penalties can include not only the lenders, but also agents and brokers.
Conversations continue as to exactly what the legislation will do and how it will look. “In the end, is it going to make it better? Safer? That’s the intent. We don’t know,” said Pontius.