We had quite a spirited discussion in the Pacific Union Market Watch meeting this morning about loans, escrows, and new lender regulations. In a nutshell, it’s key that buyers and sellers set their expectations for delayed or even cancelled escrows.
Though loans funding smoothly in 30 days or less used to be the norm, there’s a landmine of issues to navigate in the current market. And that’s slowing everything down. There’s the lender who funded a loan and then reversed the wire to the title company on the day escrow was scheduled to close, subsequently deciding not to fund. Banks are requiring multiple appraisal reviews, which are sometimes resulting in denied loans. Loans are being rejected due to a particular property characteristic (i.e., an unwarranted unit). A second loan review is often being ordered shortly before closing, delaying the close of escrow. Even buyers with as much as 50% down are enduring the scrutiny.
And to add to the fun, Regulation Z—which implements the federal Truth in Lending Act—takes effect today. This regulation will impose timing restrictions and disclosure requirements that may affect the speed with which buyers can secure their loans at any financial institution.
What it all boils down to is that buyers and sellers need to be prepared for serious delays in closing transactions. My advice these days to clients is not to count on a sale closing on time. In other words, if you’re in contract on a purchase that is dependent on your home first selling, you might want to consider renting in the interim and pursuing a purchase after you have your sale proceeds in hand.
And buyers moving from a rental to a new home may want to consider delaying giving notice to their landlord until, well, their purchase sale closes. That might mean paying an extra month’s worth of rent, but the alternative could be joining the ranks of the homeless if your loan doesn’t close until two weeks after the initial close of escrow.