People outside of the real estate business may or may not know of the significant changes to regulations regarding lending that are coming, effective August 1, 2015. But we agents have a duty to get the word out to ALL parties to the transaction, but especially the buyers.
I had a closing scheduled for today delayed, and when we asked for guidance on how we could avoid that same situation in the future, and what to expect, we received a very thoughtful and helpful response from the lender. Here is a portion of that response:
First of all, forthcoming federal regulations require that a loan application be in process within 10 business days of the application date. To be in process, it means that the buyers have to have submitted all SIGNED documents applicable to the application and provided as much as possible that has been requested by the lender (like income and asset documents). If the buyers drag their feet, after 10 business days, the loan has to be withdrawn or denied. We are then bound to certain dates from that point to keep things moving along.
It is incumbent on the buyers to get the documentation to lenders as fast as possible. This means that things like verification of cash to close has to be documented and in the file as soon up front as possible and cannot be lagging behind in the process. For buyers who don’t have the funds yet or have to “save” it up, they aren’t going to be able to make it or start application until the cash to close is in place (either in bank accounts or with gift documentation)(emphasis mine).
Lenders are going to have to get more up front at prequalification so that, once the buyers are in application, they already have the majority of what is necessary.
For [THESE BUYERS], they did EVERYTHING quickly and on time and responded immediately to our requests for items. Unfortunately, the market is buzzing (which is a good thing!) and underwriting and closing are both terribly backed up. It has been a while since we have seen this kind of volume and most lenders don’t have the staff to meet it because they don’t want to hire new staff until they see that this is an ongoing issue. Otherwise, lenders are using their current staff and trying to get as much as they can out of them.
I would definitely recommend that agents start writing contract closing dates out for 45-60 days. If a buyer is using a grant program, 60 days is going to be the minimum amount of time to allow because you have to add the grant application and approval process to everything else going on in the deal to get to closing. If there is a holiday involved, then a few more days need to be added to the closing date. We are all changing and adapting our process flows from start to finish to tighten up so we can meet the impending regulations.
This response does not even address the new regulations that require the buyer to have the "Document Formerly Known as the HUD-1" in hand at least three (3) days before closing, and requires that three (3) day period to START OVER if there are any changes to the interest rate or the cash being brought to closing. That means no last minute credits to take care of miscellaneous items that come up late in the process, or during walk through.
Personally, I think this is going to make closings after August 1, 2015 a total nightmare. Don't even get me started on the ridiculous new names for the documents and processes. [NOTE: As an aside, whoever thought that "Consummation" was a better name than "Closing" is either an idiot or brilliant, with a sick sense of humor. I'm hoping #2, but fear it's #1.]
So, buyers, be prepared to be even more frustrated and annoyed by the "consummation" process than you currently are, with even more requests for ever more esoteric documentation. Absolutely do NOT have a moving truck packed up and ready to unload on the scheduled day of "consummation." And sellers, do not count on an on-time closing, or on having the money in hand on the scheduled "consummation day." Expect delays.
More on this topic to come, but I thought the lender's response was helpful and worth circulating. As always, your comments, suggestions, and topic ideas are always welcome.