Changes coming in October 2015

Changes coming in October 2015

In just a few weeks, 2 significant changes are being implemented which will affect residential real estate transactions.

These changes are:

1. On October 1, 2015, the upfront guarantee fee for Rural Development (RD) loans is increasing. Currently, RD loans require that the buyer pay a 2.0% upfront guarantee fee. After October 1, the fee will increase to 2.75%. To illustrate the difference this will make, let’s use a $150,000 loan as an example. Currently, the fee would be $3,000. At the new rate, it will be higher by $1,125.00 for a total of $4,125.00. This increase means buyers will have to bring more money to closing, or finance it into their loan, or negotiate it from the seller.

As long as RD has issued their commitment (in other words, has approved the file and sent it back to the lender to finish the pre-closing process) by September 30, 2015, the existing rate will still apply. As we’ll discuss in another article, RD is and has been taking about 32 days to issue their commitment after receiving a file from a lender. If this turnaround time continues, loans will have to be sent to RD by August 29, 2015 if they are to obtain the RD commitment prior to the fee increase.

2. The government has mandated that effective October 3, 2015, new forms and procedures must be used on ALL closings. According to title companies and others, it will take longer to get to closing, and other delays as well as higher closing costs may result. This was supposed to become effective on August 1, but concerns from the real estate industry, as well as errors which were found in the new forms and procedures, prompted the government to push it back to October. In our opinion, this will not provide any benefit to buyers and sellers whatsoever. Instead, like almost everything the government does when it meddles in private markets, the only result will be more paperwork, more delay, and more costs.

These changes are not minor, and will make the process of buying or selling a home take longer and cost more.

If you are thinking about buying or selling, there is still enough of a window left to avoid these upcoming issues. However, you must act fast in order to do so.

If you have any questions about either of these impending changes, post them below and we’ll get you the answers fast.

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2 thoughts on “Changes coming in October 2015”

  1. What new costs can a seller expect to pay with the changes taking effect on October 3, 2015? Where are the increases? Also is a seller affected by the changes of the RD if their loan is not a RD loan?

    1. Thanks for those questions, Lana! I’ll do my best to answer them.

      The new mandated closing procedures starting in October shouldn’t affect sellers monetarily at all. (Sellers can expect closings to take longer though.) The new procedures don’t have any specifically defined new costs or cost increases even for buyers. However, given the past history of what happens when new burdens are placed on lenders, we believe that buyer closing costs will probably go up. The short explanation is that the new procedures require lenders to do a lot more paperwork, which translates to more labor costs. Somebody has to pay for that, and sadly that somebody always ends up being the homebuyer. While there are caps on fees charged to the buyer at closing, there are ways around those caps too. Hopefully at least some lenders will absorb the costs of complying with the new procedures, thus inviting competition. However, historically that has not been the case when other regulations were imposed, and buyer costs inevitably increased.

      In our opinion, most changes implemented by the government “for the protection of the buyer” end up, in practice, benefiting the lender instead. This isn’t surprising, since the government has foolishly made themselves (meaning you and I, the American taxpayer) ultimately responsible for all mortgage loans, whether written through FHA, VA, RD, and even (because of bailouts) Fannie Mae / Freddie Mac conventional loans. With Uncle Sam now being the bank behind it all, they make the rules, and make sure those rules are in their favor.

      As for the October increase in the upfront guarantee fee on RD loans, that is specific only to that loan type, and only affects the buyer. Other loan types are not affected at all, nor are RD loans with commitments issued prior to October 1.

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