Wells Fargo (WFC) could serve as a litmus test for how banks across the U.S.will deal with the largest changes to home loan disclosures since the 1970s.
Even as the housing market shows signs of recovery, banks are having to wrestle with the impact of a complete overhaul in the “good faith estimate” document – a standard disclosure document sent to borrowers under the Real Estate Settlement Procedures Act (RESPA).
The changes will take effect on January 1, leading some experts to note that home sale closings could be disrupted.
Wells Fargo said it is ready after making “a real commitment” to adapt its systems and speak with real estate and settlement agents who will help inform customers about possible impacts on loan-processing timelines.
At issue is an inherent conflict between transparency and precision. The new procedures developed by the U.S. Department of Housing and Urban Development (HUD) are designed to provide consumers with a more detailed understanding of the costs associated with closing a loan, including broker fees, to prevent the surprise jumps in payments that made the housing crisis worse.
The new forms “should help borrowers avoid surprise charges at settlement, give them the ability to competitively shop for the loan, and, ultimately, help them feel more comfortable with their final decisions,” a spokesman said.
The new estimate details and defines loan terms and costs, versus undefined line items in the old one. It specifies rate, whether the rate can change, and encourages the borrower to shop around.
For the first time, good faith estimates must match, with few exceptions, costs on closing statements.
However,understanding the objective doesn’t make implementing the new changes easy. In fact, the changes will add complexity by expanding what is currently a one-page form to three pages.
This means more work and liability for lenders since inputs of lawyers, title companies and brokers increase chances for error.
Lenders are looking for more precision than ever from HUD on the guidelines since the estimate puts them on the hook if closing costs vary.
“It’s a document that just keeps growing, and we’re in the final hours of people getting ready,” said Jonathan Corr, chief strategy officer at Ellie Mae in Pleasanton, California.
The company’s loan software, which is used to originate 20 percent of U.S. mortgages, has been updated for the changes, he said.
“This is a mess,” said Bill Dallas, chief executive officer of Skyline Financial Corp. in Calabasas, California.
As an industry, “it’s like we’ve read about this earthquake thing and are thinking, ‘We ought to do something.’ That’s where we are.” To get ready, Fairway Independent Mortgage spent tens of thousands of dollars in technology, legal and other costs, said Dan Cutaia, president of the Frisco, Texas-based lender.
And this has many banker and broker groups openly questioning the benefit to consumers.
“Everyone is trying to do the right thing for the consumer, and I’m all for that, but this is overkill,” said Bob Moulton, president of Americana Mortgage Group in Manhasset, New York. “I think some new disclosures will confuse people.”
