New Law Will Affect Closing Dates A/O July 30, 2009

The mortgage industry is certainly undergoing many changes to help provide homebuyers and homeowners better information when it comes to financing a home.  July 30^th is the day a new Federal Law takes effect which will have a large impact on when an escrow can close on a home purchase or refinance.

In 2008, the Housing and Economic Recovery Act ( HERA ) was passed by Congress, and the Federal Reserve Board published the regulations under the Truth and Lending Act.  The regulations were written to provide a more transparent, level, and fair regulation of the real estate industry; to add additional steps to help prevent deceptive lending practices; and to protect the consumers by making them more informed- and therefore more confident- in their home financing choices.

In summary, HERA amends the Truth in Lending Act (TIL ), implemented through Regulation Z.  It has a number of provisions including the Mortgage Disclosure Improvements Act, which changes the Truth in Lending Act requirements surrounding early and final disclosures and the timing of when fees can be charged.

Note:  This law effects all purchase and refinance transactions involving 1-4 family units that are primary residents or second homes.

Below are four important areas for all consumers, Realtors, lenders, and closing agents to remember when new financing is required.  It could, and most certainly will, affect the timing and closing of any transaction.  Therefore, all parties involved should keep this in mind, especially when planning for purchase transaction closing dates.

•1.       In the past, borrowers and sellers would agree on a closing date, and then the service providers-including lenders-would work as best they could to meet the date of closing.  In the future, contracts can still be written with a specific closing date, but all parties need to take into account that the earliest any home financing transaction can close is 7 business days after the borrower is issued his or her initial mortgage disclosure from the lender.  Note: Saturdays will be counted as a business day, except for Federal Holidays.

•2.        Upfront fees cannot be collected by the mortgage broker or lender ( excluding credit report fee)  until the initial disclosures are received by the borrower.  Disclosures are considered received by the borrower 3 full business days after mailing, allowing fees to be collected on the 4^th business day.  Examples include appraisals, application fees, etc.  This also means that the appraisal cannot be ordered until the 4^th business day as well.

•3.       Speaking of appraisals, the borrower must be provided with a copy of his or her  appraisal a minimum of 3 business days prior to closing.  The appraisal is considered received 3 business days after mailing.  The borrower has a right to waive this requirement if the borrower believes the 3 business day required review is not necessary for any reason whatsoever.

•4.       Lastly, an increase of more than 0.125%(1/8^th) 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 same time required to determine if the borrower is comfortable with his or her loan choice.  The TIL disclosure is considered received 3 business days after mailing.

Considering all the things that could come up or change, or finalized throughout the course of the transaction, there are a number of things that can affect the APR.  Consequently, it is critical on the front end to ensure that estimated fees are as accurate as possible.

This will be even more important for the lender/broker on purchase transactions.  In most cases, the Title and Escrow companies are not normally selected by the lender.  Personally, I have often called escrow and title to get fees, and later to have changes or miscellaneous fees added by one or both which slightly affected the costs.  Now with this change, it will become even more critical for us lenders to be as detailed as possible.

Some lenders have even come out and recommended we brokers over quote all fees.  This might at first appear to be the right thing to do given the changes taking place on July 30^th, but for cost conscious buyers, we lenders could over quote, and then appear to be more expensive than another competing lender.

Things at least for the immediate future are going to get a little dicey when competing for business.  The best suggestion that I can offer is for all parties involved to communicate as best as possible, and to plan well ahead to avoid shortfalls.  Many are recommending 45 day escrows vs. the 30 day escrows of the past with the ability to close early.

Tags: Add new tag, disclosures, escrow, escrow closing times, Federal Law, HERA, lender disclsoures, lender fees, TILA, timelines