Tuesday, July 28, 2009

New Disclosure Guidelines May Impact Your Closing Dates

Many new government laws and other changes are occurring in the mortgage industry to help ensure the home financing process is transparent and understandable to consumers. In 2008, amendments to the Home Ownership and Equity Protection Act (HOEPA) and the Housing and Economic Recovery Act (HERA) we passed by congress, and the Federal Reserve Board published regulations under the Truth in Lending Act (TILA).

The HERA-Mortgage Disclosure Improvement Act (HERA-MDIA) amends the Truth in Lending and goes into effect July 30, 2009. MDIA changes requirements surrounding early and final disclosures to consumers and addresses the timing of when fee can be changed.

Four key elements every RFS Consultant needs to know:

1. 7-Business Day Rule. Historically, consumers and sellers would agree on a closing date, and then service providers would work as best they could toward meeting that date. Moving forward, contracts can still be written with a specific closing date in mind, but all parties to the transaction need to understand that the earliest any home financing transaction can close is 7-Business Days AFTER the consumer is issued the initial mortgage disclosures.

2. Upfront Fee Collection. Historically, upfront fees could be collected immediately (i.e. Application Fee). Beginning July 30, 2009, upfront fees CANNOT be collected, including the appraisal fee, until the lender is reasonably certain that the consumer has received the initial disclosures. This rule may impact the timing of ordering an appraisal.

3. Consumer Appraisal Review. The consumer must receive the appraisal at least 3-Business Days PRIOR to the mortgage closing.

4. TIL Re-disclosure Due to APR Increase of More Than .125%. An increase of more than .125% in the Annual Percentage Rate (APR) from the initial Truth in Lending Disclosure (TIL) requires the TIL disclosure to be revised and reissued to the consumer. The consumer must receive the revised TIL disclosure at least 3-Business Days before the closing.

As always, it is imperative that you plan ahead and help your client navigate through the home buying process with a thorough understanding of the processes that have been put in place to protect their interest.

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