New Government Regulations May Create Delays

Recently, I have written about the new Home
Valuation Code of Conduct (HVCC) that requires
the use of intermediaries to place the appraisal
assignment. The intent was to eliminate any
undue influence by the loan originators when
ordering the appraisal and to insulate the
appraisers from pressure to "hit a number".

As outlined, this new process creates more steps,
less communication, and the potential for an
unpredictable result that may cost the borrower
money with no beneficial outcome.

Once again, we have new government regulations that
will come on line with loan applications received
after July 30, 2009.

This time, it is the Mortgage Disclosures Improvement
Act (MDIA) that is intended to give consumers better
information about fees and the annual percentage rate
(APR), and to build in time for the borrower to digest
the information.

Here are some key points about the MDIA:

1. Truth-in-lending (TIL) disclosures are now required
on any loan that is secured by residential real
estate. This will now include both owner-occupied
and non-owner-occupied propertis of 1-4 family units.
Previously non-owner-occupied properties were exempt.

2. There is a new seven business day waiting period
between the date the initial TIL disclosure is
provided to the consumer and the disbursement of the
loan.

3. There is also a new three business day waiting period
between the date a final/redisclosed TIL is received
by the consumer and the disbursement of the loan.
You may know that this has been a standard requirement
on refinance loans, but this new requirement will now
apply to purchases as well.

4. No fees, other than a bona fide credit report fee can
be charged prior to the initial TIL disclosure being
provided.

5. If there is a material change in the APR (generally
defined as being more than .125% difference), we
must redisclose and start a new three day waiting
period. We are hearing from some lenders that if
fees change by more than $100, they may require a
new disclosure (and trigger a new waiting period).

6. Both the final/redisclosed and initial TIL disclosure
shall contain the following statement: "You are not
required to complete this agreement merely because
you have received these disclosures or signed a loan
application".


No matter how well-intentioned the MDIA is to eliminate
abuses and last-minute imposition of fees when the
borrower feels that they have no choice but to close,
there are going to be new timing requirements for
all parties to deal with.

Borrowers, real estate agents, escrows companies,
sellers, and of course, those of us who deal with the
loan originations will all have to adapt.

Let's take a look at a typical transaction and some
implications.


Borrower applies for a new loan.

Within three days, we must provide the TIL disclosure.
(Even if it were physically possible, the loan cannot
close for another seven days).

We cannot order the appraisal for which the borrower
is to pay for until the TIL is received by the borrower.
(If sent via US mail, the presumption is that they
have received it after three days in the mail).

If there are changes to the fees, or the proposed
interest pro-ration based on the closing date, or if
the interest rate were to change, or if the borrower
selects a different program, we must re-disclose the
new TIL and APR. Escrow cannot close until three
business days have passed after the borrower receives
the re-disclosure forms.


As you can see, transactions may be subject to serial
delays.

It will be important for borrowers to make
commitments to loan programs, interest rate locks,
and closing dates.

All service providers will need to provide fee
quotes that are not subject to change.

Real estate agents will need to counsel their clients
and negotiate with the agents representing the sellers
regarding the traditional 17-day financing contingency
removal clause.

We loan originators will need to be very precise with
our disclosures based on a team effort to get all the
numbers right.

Missing loan lock expiration dates and close of escrow
dates will only create havoc in the transactions.

Giving you advance warning of what to expect is not
designed to scare you, but to prepare you for the
changes that the government is imposing.

Everything that they are regulating is creating
more impediments to the process for all the good
borrowers and reputable lenders. I, for one, would
have preferred that they prosecute the unscrupulous
lenders and allow the quality lenders to provide
quality service to their clients.