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For many who are not yet familiar with the CFPB otherwise known as the Consumer Financial Protection Bureau, buying or selling real estate has a drastic change coming this October, 2015. In the past and still for a few more weeks, we have used other standard forms nationwide to disclose information about loan costs and closing costs. First, the GFE or good faith estimate was required for a buyer who was financing a real estate purchase. It had to reasonably be accurate in disclosing the true cost of mortgage credit initially and of course, over the entire period of the mortgage loan. The GFE is toast starting in October 2015. Delays have already happened this year in the implementation date. But odds are high your next home purchase or sale will be subject to the new system even before it becomes mandatory. 

The form everyone was given if they bought or sold a home in the past is also being retired by the CFPB which is the infamous "HUD-1".  You all have one or more in your records. This legal size document was included in every closing packet you got from the title company and did a reasonably good job in first estimating closing costs (a pre-closing copy was always given so you knew how much money to deposit if you were buying and how much money you would net out of the transaction if you were selling). Every real estate agent was so familiar with those HUD-1's, especially the second page that disclosed how much money they were going to make on the sale.

And there were other forms too but the United States government in their infinite wisdom and insight has now scuttled everything for a brand new system.  And, believe it or not -- it may be better than before!  Not that anyone in the industry likes the new system which includes just two separate forms for sales disclosure purposes. Make no mistake, the CFPB has made real estate agents, appraisers, mortgage companies and title companies scramble for these big changes. And they aren't fooling around either. What goes on paper become gospel now or big fines and censures will result. You have to sign and date the new documents to establish proof you received them.

The first form is your "Loan Estimate" for the buyer. All buyers financing the property they are purchasing are given this 3 page document (approximately) which discloses the same information as the GFE. Of course if you are paying cash, only one form is required, the other new form -- the "Closing Disclosure" document which will run around 5 pages normally. Back to the loan estimate form - a $162,000 mortgage loan for 30 years at a 3.875% for example has an interest rate projected to run an APR of 4.274/% over the course of the loan. Nothing new there since all loans have costs which are added to your interest rate to calculate the true loan interest you will pay.

But a new term called the TIP or Total Interest Percentage is also disclosed on the new Loan Estimate form. In the example above, the TIP is disclosed as 69.45%.  In other words, that $162,000 mortgage note you sign 30 years from now at a fixed rate will cost you 69.45% in interest costs on top of the original principal loan payments you make for the next 30 years. Now, that may seem high but it isn't compared to the actual 30 year mortgage cost rates in my adult life. (more or less the last 40+ years). The interest cost then will be added to the principal at $112,509 if every payment was perfectly on time and no prepayments take place for the next 360 months. It's a nice disclosure. Thank God we aren't still at 9% mortgage rates where the interest alone can cost more than twice as much as the cost of the home you bought!

Frankly, I'm not a fan of government over-site when it makes it harder to sell real estate for clients. That has happened with many dictates that have come down the pike from "Dodd Frank" laws and others the past few years. Yet I had a recent experience with the CFBP this past month having gotten charged twice on two hotel rooms up in Sedona in July by a well known credit card company. Their "deal" was found out to be no deal and just a higher cost option than if I had called and reserved the rooms myself direct with the hotel's front desk. Long story short -- they refused to credit the higher charges. So I complained to the CFPB and wallah -- a permanent letter came from them stating the higher credits were posted, the matter was settled.... and as a good faith move - I was getting the difference in free money also posted to my credit card! I made money on the "deal" but only by using the power of the U.S. government to change their original decision.  (They told me "no way" initially)

Lastly, the new Closing Disclosure form gives better data, contact information for all parties to the transaction, and yes it still has the side by side buyer/seller columns we all got very familiar with in the old HUD-1 forms. So, if you are buying or selling real estate, call me at 480-345-1616 to discuss any financial matter or question you may have. Or if you are outside the Arizona Valley area, just call me for free at 1-800-782-2806.

Happy Trails! 

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About MD Anderson

MD Anderson Real Estate is a premier real estate service for both buyers and sellers of Arizona real estate, as well as those wanting professional referral services across the U,S. and in foreign countries.