New RESPA Changes to Bog Down Home Closings

March 1, 2010

New RESPA regulations now require additional “cooling off” periods when the HUD Settlement Statement is changed. While the intent of the changes is to protect the consumer, the changes are causing delays in the time it takes to move a home sale from the time the offer is accepted until the time the closing of escrow occurs.

The majority of the burden of these new changes falls into the laps of Mortgage Companies and banks. Starting at the time of loan application, the mortgagee (bank) provides the buyer with a Good Faith Estimate. From the time the buyer receives the GFE, the buyer has ten days to review the GFE and decide whether or not to move forward. OK, great idea, no problem.

If the costs in the settlement statement change, for any reason, the borrower must be informed in writing, and there will then be an additional “cooling off” period. If the written changes are presented face-to-face between the borrower and the buyer, then the waiting period is THREE days. If the presentation of changes is done by fax, email, mail, etc, then the wait is SEVEN days. This is for every time something changes on the HUD.

So how is this different? Lenders have always advised the borrower of when there were changes. The borrower would look at the changes, decide whether to accept them or not, and move forward. Now, because of these new RESPA changes, the borrower must wait the 3-7 day cooling off period.

To me, it’s as if the government is telling the buyer, “You’re not capable of making a mature decision about your finances, so we’re making you take a few days to think about it.” Imagine if you changed the HUD three times through the course of a transaction. The inspection costs came in higher, the seller agreed to pay more money in seller concessions,  and a second appraisal is required. You are now looking at postponing the closing by 9-21 days, plus the time it takes to do the appraisal, and/or inspection repairs.

Closings are already taking 45-60 days on average. It used to be 30 or less.

You can learn more about RESPA at the US Department of Housing and Urban Development website http://www.hud.gov

From the HUD website:

“RESPA is a HUD consumer protection statute designed to help homebuyers be better shoppers in the home buying process, and is enforced by HUD.”

“…designed to help homebuyers be better shoppers…”

Laws to help homebuyers be better shoppers. This is the part that just rubs me raw. Essentially the government is saying that the average consumer isn’t smart enough to make an educated decision, so they’re going to pass  laws to do it for you. Protecting the consumer is a noble idea, but I question if perhaps this time it’s gone a bit overboard.

Decide for yourself. Like it or not, it’s in effect, for better or for worse. Just be advised that it may take a bit longer to close your home purchase.

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