U.S. Real Estate Update: “Dodd-Frank Wall Street Reform and Consumer Protection Act” — New Closing Disclosure Documents will Require Additional Steps in Real Estate Closings

The federal “Dodd-Frank Wall Street Reform and Consumer Protection Act” passed in 2010 may require changes in real estate transactions as well as add a step before closing.

The moves were made to improve loan disclosure to homebuyers. Two disclosure documents, required by the Truth in Lending Act and the Real Estate Settlement Procedures Act, are being combined.

The changes are going to affect homebuyers applying for loans for property, or homeowners looking for loans to refinance mortgages. The lending party or company is currently required to provide a good faith estimate for the loan and an initial truth-in-lending document.

In an article in Arkansas Online, Scott McElmurry, chief executive officer of Bank of Little Rock Mortgage, said that, “We feel the new loan estimate gives a much better understanding to someone buying a house, in a much more readable form than the good faith estimate provides. When the consumer goes to the closing, he currently gets a final truth-in-lending document, as well as a statement that breaks down all of the costs.”

According to the National Association of Realtors, the documentation will be known as a closing disclosure, which captures all of the costs paid by the consumer.

The Closing Disclosure should be delivered at least a few business days before the closing, but that requirement may be too much of a hassle for consumers who are planning to sell their home and use the money to buy a new one. “If the consumer isn’t getting as much money back as he anticipated by selling his home and needs to borrow more money to buy the second house, a new closing disclosure may need to be re-issued and three more business days have to be given to review the changes,” McElmurry added.

Roddy McCaskill, who retired last month after 39 years as an agent and executive broker for several Little Rock real estate firms, said there may be problems with closings for about six months, but everything should smooth out over time.

The changes will take effect on Oct. 3.

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