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!
From MortgageDaily.com:
“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.
Rhonda,
Who is responsible for making sure that the redisclosure time frame is met if a redisclosure is triggered. Processor? LO? Lender (we have received notice before from a funding dept. that a redisclosure time line had to pass which may have delayed funding by a day or so.)
Tim,
I think there are several “check points” of responsibilty beginning with the loan originator making sure their final APR is not more than 0.125% higher than the last disclosed APR. This can be tricky because at my office, my processor prepared the final loan papers–so she would need to check the final APR and compare to last disclosed–I typically do not see the final TIL… I do review final closing costs and the estimated HUD…but it’s going to boil down to the the APR disclosed on the TIL.
I’m sure funding will also check the APR–however at that point, as you’ve mentioned, we’re dealing with potential delays with closing the transaction.
The key to this will be making sure loan docs go out earlier and that all escrow fees are provided to the lender early on too in order to avoid impacting the APR too close to the closing date.
NOTE: I just added a little video to the post. 🙂
Rhonda,
Who is responsible for making sure that the redisclosure time frame is met if a redisclosure is triggered. Processor? LO? Lender (we have received notice before from a funding dept. that a redisclosure time line had to pass which may have delayed funding by a day or so.)
Tim,
I think there are several “check points” of responsibilty beginning with the loan originator making sure their final APR is not more than 0.125% higher than the last disclosed APR. This can be tricky because at my office, my processor prepared the final loan papers–so she would need to check the final APR and compare to last disclosed–I typically do not see the final TIL… I do review final closing costs and the estimated HUD…but it’s going to boil down to the the APR disclosed on the TIL.
I’m sure funding will also check the APR–however at that point, as you’ve mentioned, we’re dealing with potential delays with closing the transaction.
The key to this will be making sure loan docs go out earlier and that all escrow fees are provided to the lender early on too in order to avoid impacting the APR too close to the closing date.
NOTE: I just added a little video to the post. 🙂
Rhonda,
Just wanted to say great post. Loved the Vid and thought that it went great with the message. Just have to love Regs. Thanks again.
Thanks, Apella. I think MDIA has great intentions–making sure that consumers learn about modifications to the terms of their mortgage prior to the closing table. BUT there will be unintended consequences with delayed transactions. I doubt any lender will allow the waiting period to be waived in the event of an emergency.
Aubrey Cohen from the Seattle PI referred to this post in his recent article Another Hurdle for Homebuyers
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need some clarification on the 3 day waiting period on collecting appriasal fee. If application is taken face to face and disclosures are presented at the time of application, can appraisal fee be collected, or do you still have to wait 3 days?
I know I am about a year late, but this is some great info. I am presently studying for my LO license, and was doing some research on MDIA. Testing on Wed 9/22/10 8a CST. Kinda nervous!
Good luck on your exam–let us know how you do!
Just as a point of clarification, a re-disclosed GFE in and of itself doesn’t trigger the 3-day waiting period. If the re-disclosed GFE results in the APR increasing by more than 0.125%, then it’s the APR increase causing the wait. The new GFE is indirectly responsible in this case. However, there could be cases where a re-disclosed GFE doesn’t increase the APR, and thus no wait is required. GFE is governed by RESPA, TIL is Reg Z. MDIA is Reg Z.
Thanks, Craig. Along with that, a revised GFE can only be issued when there is a valid changed “changed circumstance”. It’s possible that a new GFE may be issued without the TIL if the APR changed by less than 0.125%.
Also, some lender consider the APR changing up or down by 0.125% triggering MDIA and causing a redisclosure of the Truth or Lending.
If a GFE is redisclosed can one proceed to docs or signing later the same day it is deemed the borrower received the redisclosures?