Regulating the Real Estate Closing – More Government Alphabet Soup
While not taking full effect until August 2015, broad and sweeping federal regulation of the purchase, sale and financing of residential real estate is already impacting today’s real estate closing. Supposedly as a response to the “real estate bust,” and as part of the Dodd Frank Act, the federal government created the Consumer Financial Protection Bureau (CFPB) to institute new rules, regulations, policies and procedures to govern the purchase, sale and financing of residential real estate. If you receive this monthly newsletter you have some relationship to the real estate industry; thus, remember these four letters, C – F – P – B, because you will be hearing more about them and it in the coming months and years. These are not rules that apply to the “other guy”; no matter your role or capacity, if you are in the industry CFPB will affect you AND YOUR CLIENTS.
I certainly can’t expound on the full reach of the CFPB and its effect on our industry in a newsletter (and, frankly, I’ve yet to meet or talk to a person who can discuss its broad impact no matter the forum), but my goal is to make you aware of its existence and point-up certain glaring changes to the way we have always done business in the industry. Like much federal regulation that attempts to materially alter an industry in the spirit of “protecting the consumer,” people in the trenches (i.e. lenders, title insurance companies, closing attorneys and real estate brokerage trade associations) are on the one hand preparing to comply with CFPB while on the other hand trying to figure out what they are trying to comply with.
We do know the following:
Mortgage loan underwriting will be stricter in order to qualify as a CFPB Qualified Mortgage (QM). Many lenders already have incorporated QM guidelines, but the full effect of QM remains unsettled until the entire residential closing process comes under full CFPB purview.
In most residential loan closings, but not all, CFPB has mandated the use of a new settlement statement, identified as the “Closing Disclosure” statement, which at last count stood at 6 pages. Nothing about the new closing disclosure looks like the traditional HUD-1. The Closing Disclosure statement is required to be provided to the borrower/buyer 3 days before closing, not 4 and not 2. Sounds great, but think about what will have to be in place for that to happen. Hint: If a particular closing date is important, no more closing day change to real estate commission, or adding a home warranty or repair invoice or any other revision that is usually dictated by the buyer and seller themselves or lender.
CFPB will require written documentation of the policy and procedure implemented generally and for each closing attorney’s closing file and written confirmation the policies and procedures are being executed properly and completely. The extent of the policy and procedure documentation is not yet fully understood, but suffices it to say the folks that I talk to are preparing for the worst.
CFPB places a high level of importance on security of information and the security clearance of every person involved in the transaction. While we in the industry know that as a closing approaches things get hectic and emails start flying to “get it done,” those days will be a memory. Secure and encrypted email only for use by pre-authorized users in each transaction will be the rule. Forget about texting when it comes to a closing and "secure" information.
The list could be a lot longer, but at the risk of putting you to sleep I’m stopping at 4 for now.
The breadth and depth of CFPB are extensive. I dare say, even the head of this new federal government agency would have to admit (even if only at the side of the Dulles airport runway so nobody could hear) that compliance will require significantly additional “man hours” for the closing of residential real estate transactions. You know what more man hours means – greater cost. Despite the increased regulatory burden and attendant cost, McManamy Jackson, PC has made the conscious decision to put forth the significant and necessary resources to be at the forefront of CFPB compliance to best educate those in the local real estate industry so that your clients and you enjoy the knowledge that when closed at MJ, your transaction is truly closed and done so properly. Rest assured, McManamy Jackson, PC will make periodic updates in our newsletter as more is learned about CFPB, and you can always call Steve or Doug to discuss.
McManamy Jackson Law disclaims all liability whatsoever in relation to any materials or information provided. This information is provided solely for educational and informational purposes. It is not intended to constitute legal advice or to create an attorney-client relationship. If you wish to secure legal advice specific to your circumstance in connection with any of the topics addressed, we encourage you to engage counsel of your choice.