There's a potential new roadblock on the horizon that could wreak havoc with the Lake Minnetonka housing market, just when it's pulling out of its worst downturn in decades.
Changes to Forms Could Affect the Lake Minnetonka Housing Market
On August 1st, the new TRID (TILA-RESPA Integrated Disclosure) forms to replace the HUD-1 Settlement and Good Faith Estimate. The Consumer Financial Protection Bureau's mission is to rebuild the mortgage banking landscape so the industry will avoid the type of conditions that led to the Great Recession. The CFPB replaces the Department of Housing and Urban Development for oversight because HUD did not provide specific consumer protection.
The new rules will require a new three-day waiting period when there are any changes in the TRID forms. The recommendation is to allow an extra 15 days to close a transaction. In other words, 30-day contracts will now require 45 days, and 60-day contracts will require 75 days.
Clients, agents, and attorneys are accustomed to routinely making changes at the closing table and still closing the sale on the same day. The new three-day waiting period will severely limit this practice for items covered in the TRID documents.
So who will be affected the most when it comes to the Lake Minnetonka housing market? Maybe the moving companies.
When transactions don't close on time, it's quite common for one or more of the principals to be stuck with furniture on a moving van and nowhere to go. Anyone who has experienced this situation knows how nasty this situation can get.
If there are multiple properties involved, any delay in one home's closing could delay others from closing as well. Now imagine how much more complicated this could become if there is an error that retriggers the three-day TRID waiting period. Everyone will be scrambling to handle late closings not just for one day, but for at least three days or more.
Other potentially costly issues that could affect the Lake Minnetonka housing market include situations where one of the principals must close by a certain date to take advantage of the tax breaks on the sale of their primary residence or situations where one of the principals is involved in a 1031 tax-deferred exchange. The lost tax-benefit costs of a late closing could run into hundreds of thousands of dollars.
It doesn't take a rocket scientist to also figure out how rate locks on mortgages could be severely affected. A buyer locks in an interest rate for 60 days. There is an increase in interest rates. This means the lender can no longer sell the buyer's loan on the secondary market. As a result, the lender demands additional documentation. The documents are submitted in a timely matter, but the underwriting department takes days to get to the changes. In the meantime, the buyers' interest rate lock expires, and the property doesn't close on time. At this point, the lender requires a higher interest rate in order to close the transaction.
Beginning to get the picture of the ripple effect all this could have on the Lake Minnetonka housing market?
As we creep closer and closer to the August 1st changeover date, there will be unexpected delays in obtaining loan approval, potential changes in the documentation during the transaction, and a host of problems we probably can't even begin to imagine. Stay tuned, we'll update you again as the time draws closer.
Get more information as it pertains to the Lake Minnetonka housing market in our section on Lake Minnetonka Real Estate to your right under Lake Minnetonka Real Estate Categories.