The new Truth in Lending requirements are coming out on July 30th and there is no doubt that this new ruling is going to add a minimum of 10-15 days or more to all transactions here on home loans in San Diego. Closings and purchase contracts are going to have to be planned around this new ruling accordingly. This new ruling will effectively put an end to the regular 30 day escrow closing as we know it. Unfortunately once again, government meddling is going to cause more delays to an already damaged real estate market, and when coupled with the new HVCC ruling, the people that will pay the price for the delays will be the consumer. Of course the regulators will add that their intentions are well intended, but they don’t understand the dynamics of a fractured real estate and mortgage world especially here for home loans in San Diego, and are in effect just adding salt to the wounds with these added delays. For example, based on these new rules, we will not be able to order appraisals for at least 3 weeks, and the underwriter is not even allowed to look at the loan file for 3 weeks before they can issue a loan approval, and you can now easily add an additonal three weeks on top of this for the transaction to actually close. The new timelines below are a little complicated to understand at first, but if you have any questions regarding these timelines for home loans in San Diego, please do not hesitate to contact me.
Mortgage Disclosure Improvement Act Requirements
Recent changes have been made to Truth in Lending Act requirements regarding early and final disclosures to homebuyers and the timing of when fees can be charged.
Summary of key elements:
· New regulatory and investor guidelines will effect (and may decide) the closing date. While contracts may specify a closing date, the earliest any mortgage closing may occur is seven (7) business days after the borrower is issued the initial mortgage disclosure. Lenders count Saturdays, with the exception of Federal holidays, as a business day for the purpose of disclosures only.
· Upfront fees cannot be collected (except for a credit report fee) until the initial disclosures are received by the borrower. The regulations provide guidelines that deem disclosures to be received three (3) full business days after mailing. Starting July 30, 2009, upfront fees cannot be collected (including, but not limited to, the appraisal fee) until four (4) business days after the Lender issues its initial disclosures to the borrower. The credit report fee is an exception to this rule and may be collected at application.
· A variance of more than .125% in the Annual Percentage Rate (APR) from the initial Truth in Lending Disclosure (TIL) requires a revision and reissuance of the TIL disclosure. If this is the case, the borrower must receive the revised TIL disclosure at least 3 business days before closing. The mailing rule above applies to TIL redisclosure as well. Therefore, the TIL disclosure is deemed to have been received by the borrower three (3) business days after mailing. As a plethora of items may impact, change or revise APR, all parties must ensure estimates are as accurate as possible.
FAQs
· How do these new requirements impact applications taken prior to their effective dates?
o Applications taken prior to July 30, 2009 are not impacted.
· Does the issuance of the initial disclosure, redisclosure and fee collection timing requirements apply to investment properties?
o No. These requirements only apply to primary residences and second homes.
· Do the disclosure wait periods begin when the broker provides disclosures or when the Lender issues disclosures?
o The disclosure wait periods, both for initial disclosures as well as re-disclosure, begin when the Lender mails its initial disclosures to the borrower. Please note the appraisal cannot be ordered until three business days after the LENDER has mailed their disclosures!
· The final TIL must be received 3 business days prior to closing. Is that 3 full days?
o Three (3) business days for mailing, then three (3) business days for borrower review. Closing can occur on the third business day of the review period.
· What if the borrower adds a home equity loan or line of credit after the initial application? How are disclosures impacted?
1. Home equity loan: The initial disclosure period starts over and all disclosures must be issued for the home equity loan.
2. Home equity line of credit: There is no impact.
· How do these new regulations impact escrow states?
o Brokers doing business in escrow states will need to adapt to the new regulations by providing an initial HUD-1 before closing documents are released. Also, fees can no longer be estimated. If fees change and result in a variance in the APR of more than .125%, it will result in redisclosure of the TIL and delay the signing/closing date by seven (7) business days.
· Can last minute/rush deals still be accommodated?
o The minimum number of days to close a transaction is seven (7) business days after mailing of the initial disclosures. However, if APR increases by more than .125%, an updated TIL will be required and will add an additional six (6) business days to the timing.
· Can the credit report fees be collected at the time of preapproval applications?
o Yes. The credit report fee is the only fee that may be collected at a preapproval.
· How do you know if the initial APR has to be re-disclosed?
o An APR variation of more than .125% from the initial TIL requires re-disclosure of the new and final APR via the Truth in Lending (TIL) disclosure a minimum of six (6) business days prior to the close date.
· For the purpose of these new disclosure timelines, what is considered a business day? Which holidays will not be included as business days?
o Lenders consider all weekdays and Saturdays are considered a business day except for Federal holidays.
· Can broker-paid fees be collected before that time?
o No. The borrower on the application must have received the initial disclosures before the broker can pay fees on their behalf. It is up to the broker to ensure that fees are not collected or paid until disclosure receipt. .
Sincerely
Michael Deery