Lenders both big and small dreaded the implementation of the new Loan Estimate and Closing Disclosure required by the Consumer Financial Protection Bureau (CFPB) at the end of 2015. However, lender dissatisfaction today is more about bruised egos than lost profits. [See RPI Form 204-5 and 402]
Effective October 3, 2015, consumer mortgage lenders regulated by the Consumer Finance Protection Bureau (CFPB) began providing homebuyers who applied for purchase-assist financing:
- a Loan Estimate of all mortgage terms quoted by the lender within three business days after the lender’s receipt of the buyer’s mortgage application [See RPI Form 204-5]; and
- a Closing Disclosure, a statement summarizing the “final” mortgage terms and details, at least three days before closing on the mortgage. [See RPI Form 402]
Editor’s note — Lenders are also required to provide a special information booklet published by the CFPB to help the buyer understand the nature and scope of real estate closing costs and a list of homeownership counseling organizations within three business days after the lender’s receipt of the buyer’s application. [See RPI Form 202]
Also, the new CFPB disclosures mandate an extra three-day waiting period when the lender makes a significant change in the mortgage terms documented in the Loan Estimate. Lenders perceive this additional waiting period as a needless delay in closings — and a threat to their productivity (and profits).
Now six months after the requirements took effect, STRATMORE, a mortgage lender advisory firm, decided to test the industry’s adjustment to the new rules with a survey of lenders and homebuyers.
Of the homebuyers surveyed, a whopping 91% expressed satisfaction with their experience using the new disclosures — shutting down the previous laments of reluctant lenders.
Further, lenders themselves are performing better than expected. The survey revealed:
- 87% of all lenders (banks and independent lenders) have fully integrated the new disclosures into their practice; and
- 72% of small and 80% of mid-size independent lenders reported successful integration.
However, independent lenders’ quick adaptation left the big banks in their dust. Only 33% of small and 44% of mid-size banks reported successful integration. Further, 31% of all banks reported negative experiences implementing the new disclosures.
Homebuyer satisfaction vs. lender dissatisfaction
Part of the reason for lender dissatisfaction is the increase in operating costs these new requirements bring. Lenders reported an average $209 increase per loan in post-closing costs — which they cannot recover through increased service charges to homebuyers, according to 17% of lenders surveyed. However, the other 83% of lenders manage their operating adjustment just fine.
More importantly, the show-stopping 91% homebuyer satisfaction rating is a clear indication of the CFPB’s success in raising standards for homebuyer experiences in mortgage lending transactions. After all, increased consumer protection is the reason for the new disclosures, not lender contentment — or ego.
Lenders resistant to change and struggling to catch up with the requirements – which can only be considered “new” for so long – will likely find their footing by the end of 2016. Complaints about delays in closing time attributed to the new disclosures were already weakening by January 2016, when data revealed closings were delayed by only three days on average. Thus, with overwhelming homebuyer satisfaction and limited negative consequences (unless you are talking to lackadaisical lenders), lenders have less and less to wail about the more accustomed the industry becomes to the new paradigm of increased transparency.
Regardless, some lenders will doubtless continue dragging their heels in protest — though they will pay the price of their stubbornness when homebuyers rapidly turn to other institutions providing consumer-friendly mortgage lending. Agents, too, need to recommend compliant mortgage lenders who play by the new rules. Buyers who easily obtain – and further, understand – their mortgages are more likely to refer others to the agent who patiently advised them on the adversarial lending process.
The agent also benefits from lenders who have successfully incorporated the new disclosures into their practice. Lenders who adapt quickly are able to expedite smooth mortgage lending, contributing in turn to the agent’s ability to streamline transactions and ease the stress of acquiring purchase-assist financing for their buyers.