In an early post, Ardell wrote about the significance of a buyer being able to close quickly…new regulations may put a damper on that. With mortgage applications taken after July 30, 2009, waiting periods will go into effect with regards to when and how disclosure forms are provided to the consumer. The Mortgage Disclosure Improvement Act (MDIA), which modifies the Truth in Lending Act (TILA), was originally going to become effective on October 1, 2009, however the effective date was moved up two months which may catch some real estate professionals by surprise.
Here are some of the details:
Good Faith Estimate and Truth in Lending Disclosures….required waiting periods.
Under MDIA, early disclosures are required for “any extension of credit secured by the dwelling of the consumer.” Three business days from application, the consumer must receive an initial Good Faith Estimate and Truth in Lending (unless the borrower is denied at application).
The earliest a transaction can possibly close is seven days after the initial disclosures have been issued by the lender (delivered in person, mailed, emailed, etc.). This is assuming no re-disclosure is required.
Re-disclosure (waiting periods after the early disclosure and corrected disclosures) of the GFE/TIL are triggered if the fees and charges are more than 10%; if the APR is more than 0.125% or a change in loan terms. Three business days must pass in the event of re-disclosure. Re-disclosing is nothing new, it typically happened at closing–this will no longer be acceptable. Mortgage originators “should compare the APR at consummation with the APR in the most recently provided corrected disclosures (not the first set of disclosures provided) to determine whether the creditor must provide another set of corrected disclosures”. Double check those APRs prior to doc!
“The Commentary added by the MDIA Rule expressly provides that both the seven-business-day and three-business-day waiting periods must expire for consummation to occur. The seven-business-day waiting period begins when the early disclosures are delivered to the consumer or placed in the mail, and not when the consumer receives the disclosures. The three-business-day waiting periods begin when the consumer actually receives or is deemed to receive the corrected disclosures. If corrected disclosures are mailed, the consumer is deemed to receive the disclosures three business days after mailing. If a creditor delivers corrected disclosures via email or by a courier other than the postal service, the creditor may rely on either proof of actual receipt or the mailing rule for purposes of determining when the three-business-day waiting period begins to run.”
Consumers have the right to waive or shorten the MDIA if “a consumer determines that an extension of credit is needed to meet a bona fide perosnal financial emergency”.
No monies may be collected from the borrower with exception to a “bona fide and reasonable” credit report fee until they receive the initial disclosures. This may cause a delay of when an appraisal is ordered. Most lenders require an upfront deposit to cover the cost of the appraisal. The collection of fees rule may also cause potential issues if a borrower is doing a certain type of lock (some with float down or extended lock periods require an upfront deposit). NOTE: HVCC requires the borrower receive a copy of the appraisal at least three days prior to closing.
Tim Kane can attest that there is nothing worse than a borrower learning at signing their final loan papers that the fees are significantly higher than what was originally disclosed. I’d like to think that all mortgage originators redisclosed WHEN modifications to the transaction/fees take place…obviously, this has not been the case.
Re-disclosures could become a “holy hand grenade” to quick closings.