Imagine that you've decided to reward yourself for your
hard work and success, and purchase a Bentley Continental
GT Speed. You walk into the showroom, perhaps take a test
drive, haggle with the sales associate—as much as one
"haggles" for a Bentley—and within an hour or two,
depending on your credit score and liquid assets, you drive
away in your new car.
That's a purchase of nearly $200,000 that you made in one
afternoon, with financing. According to RealestateABC.com
the median home price in December 2007 was just slightly
higher, at $207,500, and yet no one really expects that
purchase—with a mortgage—to take less than 30
days. Some home closings even take months.
That's what efficiency brings, and that's where the Uniform
Closing Instructions (UCI) comes in.
What the UCI is and does
Kudos are due to the Mortgage Bankers Association of
America (MBA), American Land Title Association (ALTA) and
American Escrow Association (AEA) for their work on the
Uniform Closing Instructions (UCI), which are expected to
be ratified in the first quarter of 2008. This monumental
piece of work offers tremendous protection for consumers
from predatory practices and is long overdue.
The UCI comprise two parts: The general closing
instructions (GCI) detail the requirements for all
transactions; the specific instructions (SCI) will provide
a standard format for the details of each transaction.
The current closing instructions that lenders use vary
wildly from state to state, and even county to county, and
so do settlement agent practices. This results in increased
costs across every aspect of the closing process, costs
which are then passed along to consumers, both in money and
time. That is the impetus that set MBA, ALTA and AEA into
action, to develop new standardized mortgage instructions.
The UCI will streamline the entire process, improving
efficiency and lowering costs by replacing the endless
myriad of paperwork (and cutting down on the massive amount
of it, as well) by introducing standardized sets of just
two document packs (the general closing instructions and
specific closing instructions). This should help limit
mortgage fraud and allow for automated (e.g.,
Internet-based) mortgage originations.
It's important to note that though the instructions will
not be required to be used by lenders, the sponsoring
groups believe the industry is crying out for such a
solution. And given the current credit crisis, any help
given to limit fraud and smooth the closing process will be
universally lauded. There should be no doubt that the
major, reputable lenders will be glad to use these
instructions.
Positive impact
Streamlining and clarifying the closing process is a
positive in and of itself. Using the instructions promise
to increase efficiency, saving time and thus money, across
the lending and settlement industries. This should
ultimately reduce costs for borrowers, perhaps allowing
them to feel better about the process.
One of the keys to success is the reasonable time
requirement. The instructions require the lenders get the
data to the closing agents 48 hours before the closing
time. (Today's deadline is the closing table; that's when
the lenders get their information.) This way, the borrowers
will have time to look at the closing documents, ask
questions, make comments, and make necessary changes. Thus,
when you get to the closing table, the process should be
very simple, as the parties involved should have already
read the documents and taken care of any errors.
It will prevent delays in closings that cost the industry
and the borrower money. With each duty and responsibility
clearly articulated between the lenders, title companies
and closing agents, no longer will items fall through the
cracks, preventing a smooth closing. We've all seen
closings not happen due to confusion or mistakes, which can
cost a borrower his or her deposit, not to mention that
continued faith in the process is necessary for home sales
to move in the right direction.
This leads us to the most important outcome of the expected
near-universal adoption of the UCI: limiting fraud. The
settlement agent is directly charged with detecting and
deterring mortgage fraud, which directly contributed to the
current crisis the real estate market is embroiled in, as
settlement agents are the gatekeepers of the transaction.
The more cognizant they are of their role in combating
fraud, the better the chances of preventing straw loans.
The documents even control the amount a mortgage broker is
permitted to be involved in the closing process.
Finally, the UCI will pave the way for "automated mortgage
originations" or eMortgages, as the MBA has termed them.
With a standardized set of instructions, a potential
borrower could complete the process online, even submitting
PDFs of the necessary documents (such as pay stubs, etc.).
This will help move the industry into the new century and
allow for even greater ease of closing.
The bad news
On the down side, the most significant impact of the UCI is
its restriction on legitimate flip sales. The UCI will
curtail the buying and selling of property due to
financially-distressed circumstances, as it doesn't permit
a reduced purchase with an immediate turnaround to a sale
at retail prices.
While this is an attempt to help stem fraud, many flip
sales are responsible, legitimate transactions done by
aboveboard investors. Thus the UCI will slow the real
estate market recovery, as investors often help drive the
market when no one else is buying.
With the real estate inventory as high as it is and lenders
as skittish as they are, any barrier to home sales prevents
a turnaround and will only serve to deepen the problem. In
this case, the authoring agencies are cutting their nose
off to spite their face.
The bottom line
Obviously, the good overwhelmingly outweighs the bad. And
while the instructions in their current state are not
perfect, they are a great start. In the long run it will
help every person involved in the closing transaction and
create a better and safer buying and selling climate.
A uniform set of instructions that is widely adopted by the
industry will allow skilled agents to conduct the closing
process quickly and accurately, will strengthen compliance
and anti-fraud tactics, and will reduce the costs of
completing a transaction. Adoption of the UCI will
ultimately prove profitable to everyone involved.
----------------------------------------------------
Jack Sternberg is a nationally recognized expert on real
estate investment and the creator of the renowned "Buyers
First Program" who's been in the business for more than 30
years. Sternberg's deals have totaled over $750 million and
he's been to the closing table more than 1,500 times. For
more, visit http://www.askjacksternberg.com
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