New govt regulations take effect, drive up closing costs

Homebuyers in 2014 will no doubt experience a higher range of closing costs than those homebuyers coming before them. With the start of this new year, both mortgage lenders and title companies are now subject to several new regulations spawned by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. 

For example, as administered through the newly formed Consumer Protection Financial Bureau (CFPB), new disclosure forms will be required of mortgage lenders and title companies by August of 2015, including, but not limited to, the Loan Estimate (replacing the current Good Faith Estimate) and the Closing Disclosure (replacing the current HUD-1 Settlement Statement).

The requirement of these new disclosure forms effectively voids all current closing software production systems and demands a complete overhaul of those software systems. Re-tooling these software systems will be just one expense that will be passed along to the consumer. 

Another closing cost increase will be shifted to consumers with the forced adoption of Best Practices policies by title companies. Because the new law imposes liability on mortgage lenders for the acts of third-party vendors, including title companies, the mortgage industry has forced the hand of the title industry to adopt a uniform Best Practices policy. 

That means every title company, small or large – local or national – must implement and administer its own Best Practices policy and remain subject to yet another time-consuming annual audit. It also means that title companies (large or small) will likely have to expand their payroll to accommodate a chief compliance officer or an equivalent thereof. 

Whether or not the consumer is better protected remains to be seen but, for now, we do know that the costs of all these changes will be reflected on the new Closing Disclosure in the form of increased closing costs.

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