NEW HOME CLOSING RULES

It’s been almost four months since new home closing rules (the Consumer Financial Protection Bureau’s (CFPB) TILA-RESPA Integrated Disclosure (TRID)) took effect on Oct. 3, 2015.

How much have these new home closing rules impacted – also known as the “Know Before You Owe” initiative – mortgage lenders and vendors so far?

According to sources, it took an average of 49 days to close in both December and November – up from about 42 days in October, with TRID cited as a likely cause. Flagstar Bank, in its recently released fourth quarter earnings report, says TRID was a contributing factor to a 32%, or $22 million, decrease in sales for the quarter.

“TRID is delaying closings primarily through the title and attorney industries (mostly the seller’s counsel), which were not ready for this change and are fighting it every step of the way,” says Brian Koss, executive vice president of the Mortgage Network, one of the largest mortgage companies on the East Coast.

“The lack of clarity in TRID has added great pain throughout the industry, since everyone is interpreting the regulations differently,” Koss adds. “This is creating issues with tech vendors that support different companies and is causing confusion among title companies over what is ‘standard’ and among investors buying loans from the market. Each investor seems to be using a different interpretation of the TRID guidelines, causing backups with warehouse lenders and in correspondent departments. Add to this the fact that the typical borrower does not do what they are told and often delays reviewing and signing documents.”

Alec Cheung, vice president of product management and marketing at e-document technology firm eLynx, says, “Getting the fees right on the closing disclosure is challenging, and when errors are discovered, it often requires closings to be rescheduled in order to allow time to fix and re-disclose. As a result, lenders are providing for additional time in order to ensure they get the closing disclosure correct. The challenges are mainly stemming from the collaboration required between lender and settlement agent,”

“Like every extra layer of regulation that was added post-housing crisis, these new home closing rules (TRID) end up somewhere in the cost of the loan. In the end, the buyer is essentially getting forced-place insurance at a high cost yet does not take advantage of all the information and disclosures that are provided. The forms are much better, but at what cost?

“Lenders are bearing additional costs now of these new home closing rules, but over time, these temporary transition costs will abate,” Cheung adds. “What may not come down are the higher costs of compliance in general. The regulatory burden is heavier now with the likes of ‘Know Before You Owe’ and [the CFPB’s ability to repay/qualified mortgage rules], and consumers may, indeed, bear some of this cost through higher rates or fees.”
With respect to cost, yes, TRID has resulted in additional operating costs. The cost of technology solutions has gone up, and the function of the time it takes to complete data entry for testing compliance of multiple loan estimates and closing disclosures has increased four to 10 times, depending on how many disclosures and re-disclosures are provided in a file. This in itself creates more labor costs – which, ultimately, will be passed to the borrowers.”

FEDERAL GOVERNMENT NO LONGER PROTECTING TENANTS POST FORECLOSURE.

FEDERAL GOVERNMENT NOT PROTECTING TENANTS POST FORECLOSURE.

The Protecting Tenants at Foreclosure Act (PTFA) expired last December.  The Act allowed tenants to stay in the property at least 90 days after it was foreclosed.  Should it make a comeback?   There is a proposal in Congress to make it permanent.  Lenders disliked the law as it forced them to be a landlord and delayed the repossession process.  Under the old PTFA it was possible for the lender to be forced to honor a long term lease.  There were some unscrupulous people who fraudulently created long term leases. However, it was good because it created a national standard for dealing with tenants thus avoiding numerous state laws that have been adopted since the housing crisis.

What no one wants to talk about is that 1/4 of all mortgages still are at risk of foreclosure.  This means that in those states like Missouri who do not have laws to protect tenants there will be tenants who are evicted immediately after a foreclosure.

Bringing back the PTFA in some form would give the public more confidence in the lending industry.  On a national level it would show that lenders are not callous, not cold and calculating.  There are lenders who still apply may provisions of the old PTFA on their own.  Lenders realize there are tenants who are unprotected.  These same lenders are not honoring long term leases, but they are allowing 90 days for the tenant to move.   These lenders are not just nice guys.  Lenders do not want a tenant on the news talking about how horrible the lender treated them.   So, today it is every lender for themselves.  Good luck tenants.

Foreclosure protection rules expand

Foreclosure protection rules expand.  The Consumer Financial Protection Bureau (CFPB) is proposing numerous new rules for mortgage servicers to ensure no one is wrongfully foreclosed upon.    Here are the proposed new rules:

  • Provide borrowers with alternatives to foreclosure more than once during the life of the loan.
  • Tell borrowers about these protections even if the borrower is current.
  • Expand the rule to allow for protections for surviving family members, transfers after a divorce, legal separation, or when a borrower who is a joint tenant dies.
  • Notify borrowers when the loss mitigation application is complete.
  • Stop dual tracking.  This takes place when a borrower make a loss mitigation application but the foreclosure process continues.

There are so many foreclosure protection rules that keeping track is next to impossible.  The consumer, homeowner, has no chance of knowing all these rules.  How  can you expect the government to police every rule to every mortgage company?

ZOMBIE HOMES

ZOMBIE HOMES are still around.  You know the zomie homes where the owner walked away due to the underwater mortgage.   Now the house is vacant.  There is no equity, no homeowner and nothing but blight.

It is a nightmare for the neighborhood and the neighbors.  Vacant homes breed vandalism. There are only two possible solutions.  The zombie homes are cured or killed.  Most of these vacant homes will end up as short sales, foreclosures or bank owned sales (REO).

The most effective method would be to maintain a short efficient foreclosure process.  It would seem unlikely since lenders, servicers of loans and our government are most certainly less than efficient.  Option two would be for the banks or the cities to aggressively take possession of the property and rehab or demolish the zombie homes.

FORCE PLACED INSURANCE

New force placed insurance mortgage restrictions. Failure by a lender to pay attention to these rules is severe.  In March, Wells Fargo along with others settled a class action lawsuit over its force placed insurance practices, resulting in a reported out of court settlement of about $19 million.  As part of the settlement Bank of America has agreed to forgo commissions on force placed insurance for a period of three years.

The rules originate from the Dodd-Frank reform and the Consumer Protection Act which requires a lender servicing a loan to verify and document that the homeowner’s insurance policy has lapsed and that there is no insurance on the property before imposing forced placed insurance (also known as LPI charges).  In addition servicers must provide each borrower with advanced notice prior to obtaining a forced placed policy and notify the borrower annually before renewing the policy.  The first notice is to be sent at least 45 days before purchasing the LPI policy.  The second notice is to be sent at least 15 days before charging the borrower for LPI coverage.

Generally speaking if the servicer requires the insurance to be escrowed, then the servicer must pay the insurance bill even if funds need to be advanced.

Should the borrower subsequently provide evidence of insurance, then the servicer must cancel the LPI insurance within 15 days and refund any premiums charged for duplicate coverage to the borrower.

Borrowers need to know they have rights regarding force placed insurance.

 

KNOW BEFORE YOU OWE – MORTGAGE RULES

On August 1, the Know Before You Owe mortgage rule goes into effect. One of the important requirements of the rule means that you’ll receive your new, easier to use closing document, the Closing Disclosure, three business days before closing. This will give you more time to understand your mortgage terms and costs, so that you know before you owe.

Giving you three business days to review your Closing Disclosure before you sign on the dotted line is designed to protect you from surprises at the closing table. It also gives you time to consult with your lawyer or housing counselor and ask all the questions you might have about the terms of your mortgage.

The new mortgage disclosures will delay the closing. First, the three business day rule is based on delivery of the disclosures.  Delivery is presumed based on the mailbox rule of adding an additional three (3) days.  So, the three day business rule is effectively a six (6) day rule.   Also, if there is a change to any one of three, very specific, and very important items, the lender must give another three business days to review the updated disclosure.  They are:

  • Increasing the annual percentage rate (APR) by more than 1/8 of a percentage point for a fixed rate loan or 1/4 of a percentage point for an adjustable rate loan (decreasing the interest rate or fees doesn’t cause a delay) or
  • The addition of a prepayment penalty or
  • Changes in the loan product, from a fixed rate to an adjustable rate loan.

However, many things can change in the days leading up to closing that won’t require a new three day review period, including typos on the forms, problems discovered on a walk through, and most changes to payments made at closing, including changes that require seller credits.  The Bureau does not care about the seller, only the consumer.
Remember:  Know Before You Owe mortgage rules go into effect on August 1st.

LENDER FINES COMING 8-1-15; HUD-1 GONE

HUGE LENDER FINES are coming after August 1, 2015.  This is when the HUD-1 goes away and new forms are to be used for consumer real estate closings. The Consumer Financial Protection Bureau (CFPB) who call themselves the “Bureau”, like the FBI does is solely funded on the fines it collections from violators.  Millions of fines are collected each year.  To stay alive, the Bureau must seek out violators, establish fines and must collect the fines for its budget.  Its 2015 budget is $618.7 million.  Remember the the CFPB mission is to make “rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their financial lives”.

The CFPB maintains the Consumer Financial Civil Penalty Fund (CPF) for this purpose. Collections of civil penalties are deposited into the CPF, and such funds are available for payments to victims of activities for which civil penalties have been imposed under the Federal consumer financial laws. If victims cannot be located or payments are otherwise not practicable, the Bureau is authorized to use such funds for consumer education and financial literacy programs.

The Bureau was established on July 21, 2010 under Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act Public Law No. 111-203 (Dodd-Frank Act).  The CFPB was established as an independent bureau within the Federal Reserve System.  The Dodd-Frank Act authorizes the CFPB to exercise its authorities to ensure that, with respect to consumer financial products and services: 1. Consumers are provided with timely and understandable information to make responsible decisions about financial transactions; 2. Consumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination; 3. Outdated, unnecessary, or unduly burdensome regulations are regularly identified and addressed in order to reduce unwarranted regulatory burdens; 4. Federal consumer financial law is enforced consistently in order to promote fair competition; and 5. Markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.

When an independent bureau is in charge of enforcing the regulations so it  can feed its budget, to issue lender fines, we all need to be watch out for this elephant in the room.

MISSOURI REAL ESTATE TAX SALES ARE TROUBLE

Get rich with no money down. The ultimate and perfect business plan.  One small problem.  The devil is in the details.  Investors at Land Tax Sales want to save a buck, so they go through the process themselves and find new ways to screw it up.  The latest tax sales trouble came when the purchaser of the property at the tax sale failed to give notice to all interested parties to the property.  The result was predictable.  The court set aside the tax sale.

In the Matter of Foreclosure Liens for Delinquent Taxes v. Parcels of Land, Case No. SC93982, the Supreme Court of Missouri affirmed the lower court decision to set aside the sale because the property was encumbered by two mechanic’s liens, and a properly filed mechanic’s lien is a substantial property interest that is subject to due process.  So, the lienholder was entitled to personalized notice by mail.  The Court reasoned that the lienholder’s name and address were reasonably ascertainable thus placing the burden on the purchaser at a tax sale to give notice.

Judge Wilson of the Supreme Court clarified the Court’s ruling by saying that this type of notice only applies to a mechanic lien claim for which a judgment has been obtained.   So the ruling would not then apply to a lienholder who has only filed a mechanic’s lien or a subsequent mechanic’s lien petition.  It is curious to me why the court would not require notice for someone who is prosecuting his claim under the law and according to the prescribed statutes.  The purchaser can easily determine the name and address of the person who filed the lien or who filed the lawsuit to enforce the lien.  So why not give him notice?  I often tell my client’s not to try and make sense of the law.

In closing,  good luck to all investors at tax sales who want to go it alone to save a buck.

ST. LOUIS BANK LOAN

Anyone thinking of getting a loan must read this article.  If you are borrowing money to buy a home or refinance your current home, you must read this article. when meeting for the first time with a loan officer or some other loan arranger, do the following:

  • First, come armed with a list of questions for the person who wants to arrange your loan BEFORE you agree to take out the loan.
  • Second, ask the loan arranger to answer each questions “Yes” or “No”, sign and date your list of questions and give the list back to you. 
  • Third, ask the loan arranger to explain each “Yes” answer and its effect on you.
  • Fourth, if the loan arranger is unwilling to answer the questions or if you are not satisfied with any of the explanations, consider looking elsewhere for a loan.

Important Reminder! There are many other questions that you can and should ask and get answers to before you agree to take out a loan to by or refinance a house. If you don’t know what they are, you have more homework to do before you are ready to take out a St. Louis bank loan.

  1. Know who you are dealing with.  Is it a mortgage broker who is going to sell the St. Louis bank loan after you sign?
  2. Is there a fee for arranging the loan, appraisal, credit report, document prep fee or broker fee?
  3. What are the terms of the loan St. Louis bank loan.  Is there a co-signer required? Is there mortgage insurance required? What is the interest rate and maturity date?
  4. What is the purpose of the St. Louis bank loan?  Is it to purchase a house or refinance an existing loan? Will the refinance cost more or less interest and will the monthly payment be more than before?
  5. Never sign forms that you do not understand.
  6. Never sign forms that are left blank or have spaces that have blanks.

St. Louis bank loan interest rates are low but crooks are even lower like pond scum.  So, ask the right questions to get the right result.

ST. LOUIS CITY TAX SALES MAKE MONEY

St. Louis CITY TAX SALES make money.  St. Louis City Tax Sales happen because of non payment of Real Estate Taxes.  St. Louis City holds sales four times a year as the properties are sold in geographical regions.  The procedure in St. Louis City is a judicial process which is a court process to confirm the sale which was conducted by the Sheriff of St. Louis.

A smart investor is an informed investor. Do your homework for each property you want to bid on. Go to Google Maps or drive by the property.  Remember, you can not go inside.  You should be careful not to walk on the property as you may get shot.  Look at values of comparable houses in the area.  This can be done on Zillow.com or viewing the St. Louis City Collector of Revenue website.  Determine how much you can spend and presume the worst about the interior condition.

Now that you purchased the property, your job, or that of your attorney, is just starting.  You, the purchaser, need to obtain a title report which will reveal all owners, judgments, and other lien holders such as a lender or mortgage company.  You will need to check that the Sheriff gave all interested parties NOTICE that the property was going to be sold for nonpayment of taxes.  Remember our Constitution requires proper notice be given before property can be taken away.  You want to make sure that no one comes back later and claim they did not know of the sale.  NOTICE is critical to these proceedings.  St. Louis City Tax Sales make money.  But only if you follow the rules. The court will always require you to strictly comply with the rules.

Notice must also be given to anyone who remotely had an interest in the property of the hearing on CONFIRMATION of the tax sale.  An appraiser, who you hired, will testify as to the fair market value under forced sale conditions.  Hopefully, the value is equal or less than what you paid at the sale otherwise it is possible that the Judge will require the purchaser to pay more for the property.  

Once the judgment is obtained, you have 10 days to apply for an occupancy permit,  (more money, of course).  You do not have to obtain the permit only apply for it.  Once this is done, go to the Sheriff with your paperwork and obtain your deed and have it recorded.  CONGRATULATIONS. Now you know how St. Louis City Tax Sales make money.