OfflineOn May 8, 2009 the Federal Reserve Board (Board) issued a final rule implementing changes to the Truth in Lending Act (TILA) made by the Mortgage Disclosure Improvement Act of 2008 (MDIA). The Housing and Economic Recovery Act of 2008 was passed last year and signed by President Bush on Wednesday, July 30, 2008 and the HERA‐MDIA rules will go into effect on Thursday, July 30th 2009.
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. (see http://www.realtor.org/government_affairs/gapublic/hr_3221_key_provision...)
Whether you are the buyer’s agent or the listing agent you will be affected by this legislation. Also, your current borrowers who are already under contract who may be affected.
Four key elements you need to know:
1. If the borrower is financing the property, these new regulatory and investor guidelines will impact—and could even dictate—the closing date.
Historically, borrowers and sellers would agree on a closing date, and then service providers – including lenders – would work as best they could toward meeting that date. Going forward, contracts can still be written with a specific closing date in mind, but all parties need to take into account that the earliest any home financing transaction can close is business days after the borrower is issued his or her initial mortgage disclosures from the lender.
(Note: At Wells Fargo Home Mortgage, Saturdays, with the exception of Federal holidays, do count as a business day for the purpose of disclosures only.)
2. Upfront fees cannot be collected by the mortgage broker/originator (except for a credit report fee) until the initial disclosures are received by the borrower. Disclosures are considered “received” 3 full business days after mailing, allowing the fees to be collected on the fourth business day.
Historically, upfront fees could be collected immediately. Starting July 30, 2009, upfront fees cannot be collected, including the appraisal fee, until 4 business days after Wells Fargo Wholesale Lending issues the initial disclosures. (Note: Enhanced and Table Fund brokers can collect fees after the borrower has received the initial disclosures provided by the broker.) The only exception is the credit report fee which can be collected at application. This also means that the appraisal cannot be requested until the fourth business day.
3. The borrower must be provided with a copy of his or her appraisal a minimum of business days prior to closing. The appraisal is considered “received” 3 business days after mailing.
To help expedite the process, Wells Fargo Home Mortgage has elected to have a copy of the appraisal issued directly to the borrower – and the borrower must receive the appraisal at least business days prior to the mortgage closing.
This means the borrower may receive his or her appraisal before or simultaneous to the mortgage broker/originator receiving their copy. If the borrower believes the 3-business-day required review period is not necessary for whatever reason, he or she has the right to waive that requirement.
4. 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 borrower. The borrower must receive a revised TIL disclosure at least 3 business days before closing, providing the borrower with the time required to determine if the borrower is comfortable with his or her loan choice. Again, the TIL disclosure is considered “received” 3 business days after mailing.
A more typical contract date may be 30-45 days — or possibly longer (such as with a new construction loan). Considering that many things occur and may be changed or finalized throughout the course of the transaction, there are a number of things that can impact the borrower’s APR. Therefore it is critical on the front end to ensure that estimated fees are as accurate as possible.
Summary of key elements:
• Does not apply to Investment Properties.
• 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.
• 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 (not the broker) issues its initial
disclosures to the borrower. The credit report fee is an exception to this rule and may be
collected at application.
• 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.
• Federal Holidays that do NOT count as business days: The holidays as recognized under 5 U.S.C.
§ 6103(a) are:
The Mortgage Disclosure Improvement Act, effective July 30, 2009, part of the Housing and Economic Recovery Act (HERA) of 2008, specifies new requirements for the disclosure portion of the loan application and fulfillment process. Highlights of these changes include:
• Collection of Fees: No fees, other than a bona fide and reasonable credit
report fee, can be charged prior to the applicant’s receipt of the initial Truth-In-Lending (TIL) disclosure.
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• New Business Day Definition: Saturdays are now considered a business
day for purposes of disclosure receipt. Business days will include all calendar days except Sundays and federal holidays.
• Timing of Disclosures: Early disclosures must still be provided no later than three business days after receipt of an application. Under the new rule, early disclosures must also be provided at least seven business days before
closing/signing.
• Early Disclosure: The initial Truth-in-Lending (TIL) disclosure is required to be provided to the borrower on both purchase and refinance transactions
involving a borrower’s principal or secondary dwelling.
• APR Change: If the APR increases by more than 0.125 percentage points
from the value last disclosed to the borrower, a corrected Truth in Lending (TIL) disclosure must be furnished to the borrower at least three business days before closing/signing.
• Re-Disclosure Mailing Period: When corrected disclosures are mailed, the
borrower is presumed to have received their corrected disclosures three business days after mailing.
• Appraisal Disclosure: Homebuyer must receive the appraisal at least 3
business days prior to the mortgage closing. This enforces the importance of home buyers to obtain a full credit approval as early as possible during the home buying process so that they are subject only to (a) appraisal, (b) clear title and (c) homeowner’s insurance. It also stresses that any changes in their situation at all could significantly delay “rush” closings because the waiting periods must be enforced. This could also jeopardize locks and borrowers could end up having to pay extra to extend their locked loans.