Don’t wait to refinance your home

If you are considering refinancing your home, you may want to consider doing so now. In August of this year, the rules governing consumer disclosures will be drastically different and, more likely than not, there will be some hiccups as lenders and settlement agents (the attorneys) adapt.

The Consumer Financial Protection Bureau has issued regulations that completely overhaul the closing process.  For example, under the current regime, the borrower should receive a Good Faith Estimate from the lender when she applies for a loan.  At the closing, typically a month or six weeks later, the actual costs of the closing are computed and then compared to the Good Faith Estimate on a settlement statement.  This process of reconciliation occurs at the end of the closing process.  Under the new rule, the Good Faith Estimate and the settlement statement are aggregated into a single five page document that must be given to a borrower three days before the closing.  (BTW:  if you think the paperwork for a residential closing is complicated now, just wait for the new regime.)  The practical impact of this is that all the expenses and adjustments for a closing must be calculated earlier in the transaction.  This is entirely at odds with the typical closing workflow now which requires that these important activities occur immediately before closing.

Furthermore, the process of assembling the current form of settlement statement is done with computer software.  After August 1, there will be no settlement statement and a new “Closing Disclosure” must be prepared.  However, many of the leading software companies have not rolled out their software upgrades to the settlement agents.  Despite significant advance notice of the regulatory change, the complexity of the software redesign has stalled delivery of the app to the settlement agents.

I shudder to think how the new rule will affect purchases.  Problem at the final walkthrough?  Now, the parties can address that at the closing table with a credit or escrow to address last minute repairs.  There seems to be no clear answer from the Consumer Financial Protection Bureau, title companies or lenders about how this will be addressed after August 1.  What about a credit to the seller for the amount of oil in the home fuel oil tank?  Determining that adjustment will have to be done much sooner and the buyer and seller will have to accept more uncertainty about the amount of the adjustment.

Closings on refinances in the pipeline before August 1 will be handled under the existing system.  Given the big changes confronting the industry this summer, you may want to consider completing your refinancing now, prior to the change.