Worried About Dodd-Frank? ECL Software Can Help.
Builders and lenders can benefit from our software’s automatic notifications.
The Dodd-Frank Wall Street Reform and Consumer Protection Act has been called the most comprehensive financial regulatory reform undertaken since the Great Depression. The legislation is sprawling, including many provisions designed to help prevent circumstances similar to those that caused the Great Recession.
Though Dodd-Frank passed in 2010, not all provisions have gone into full effect yet. One notable provision of interest to builders and lenders is Dodd-Frank’s new Loan Estimate and Closing Disclosure requirements, which will go into effect August 1.
Two Important Changes Could Cause Delays
The new Loan Estimate and Closing Disclosure requirements specified by Dodd-Frank will change two important aspects of the home loan process:
- The Good Faith Estimate and initial Truth-In-Lending disclosures will be combined into a Loan Estimate form which must be given to the buyer within 3 days of making an application.
- The Final Truth in Lending Disclosure and HUD-1 Settlement Statement will be combined into a Closing Disclosure which must be given to the buyer 3 days before closing.
This second change is the one that has experts worried. The HUD-1 used to be due on the day of closing, and in order to produce the necessary documentation 3 days earlier some significant adjustments in administrative processes will be required. It will also be much more difficult to incorporate any last-minute changes to the loan terms or the builder’s contract without delaying the closing.
Impact of Dodd-Frank Delays
Dodd-Frank is designed to protect consumers, but if delays occur as a result of the new requirements, everybody suffers, including consumers.
- Lenders: A delay caused by changes to the building contract or schedule can cause headaches for lenders if it causes the borrower’s rate lock to expire. The process could be delayed even further and the borrower may even walk away.
- Builders: No builder wants to carry a finished home on their books for one day longer than necessary. This incurs carrying costs that eat away at their bottom line.
- Consumers: Closing delays are also bad for buyers because they can interfere with scheduled activities like the arrival of movers, appliance delivery, utility service, etc.
Organization & Communication is Key
The best way to safeguard against Dodd-Frank delays and their potential ramifications is for builders and lenders to stay in close communication throughout the closing process. The goal should be for any changes to the building contract or any change orders to be communicated to the lender at least a week before closing.
Our CMIS software can help builders with communication and organization thanks to the built-in “Notification” and “Check List” features that can be set up to track necessary memos and disclosures. Our Fund Control software for lenders contains a similar feature that can be used to create deadlines and ensure the new Dodd-Frank disclosures go out on time.