Are New CFPB Rules Slowing the Mortgage Approval Process?

Looking to get a mortgage? Well, you better have some time on your hands. Some in the real estate industry are claiming that new federal rules meant to make mortgage terms easier to understand are causing it to take longer for home buyers to get a mortgage.

The changes, put in place by the Consumer Financial Protection Bureau in October, replace the forms borrowers receive when they make an application and before they close on a mortgage. The new forms are meant to make mortgage terms and fees more clear. The rules also require lenders to give borrowers final terms of a loan at least three business days before closing to ensure they have time to understand the agreement.

The month following this change, mortgage-processing firm Ellie Mae saw that mortgages took an average of 49 days to close in November, a three-day increase from October and the longest closing time since February 2013. Behind the scenes, some lenders describe disarray as various parties in real-estate transactions carry different interpretations of the same rules and both changes resulted in large technical and training challenges.

“Everything is in turmoil right now. Nobody knows what they’re doing,” said Kelly Welch, executive vice president at lender Equity Resources Inc. in Newark, Ohio. Welch and her company have experienced pains with these new rules. In some transactions, other parties in a home sale have a different view of how the new forms should be filled out than her company, leading to delays and back-and-forth as they try to sort out what to do. Often, a dispute arises over such simple things as on what page a mortgage fee should be listed, she said.

Advocates for the changes say they are a common-sense response to the housing crisis, during which it became apparent that many borrowers didn’t understand the ramifications of terms such as teaser rates or growing principal balances. Some don’t understand why the new changes have caused such a headache. Pete Mills, a senior vice president at the trade group Mortgage Bankers Association, said many of the hiccups have occurred behind the scenes, with lenders devoting more man-hours to fixing problems rather than pushing mortgage closings back.

Do you have any experience with the new mortgage rules? Have they caused any problems for you?

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