The Real Idaho Blog: July 2009

I am publishing information to those that may be on strict timelines for closing.

why government changes may effect your closing dates

In 2008, the Home Ownership and Equity Protection Act (HOEPA) and the Housing and Economic Recovery Act (HERA) were passed by Congress, and the Federal Reserve Board published the regulations under the Truth in Lending Act. These 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 consumers by making them more informed – and therefore more confided – in their home financing choices. In addition, Fannie Mae and Freddie Mac adopted the Home Valuation Code of Conduct (HVCC) in 2008 to reinforce appraiser independence, valuation protections, and enhance the overall integrity of the valuation process.

Effective May 1, 2009HVCC: Promotes the accuracy of appraisals by shielding appraisers from undue influence, and ensuring that borrowers have sufficient notice of appraisal content by requiring that borrowers receive a copy of their appraisal reports no less than three days prior to the closing of their loan absent a borrower waiver of this requirement.

Effective July 30, 2009HERA: Amends the Truth in Lending Act (TIL), implemented through Regulation Z. Has a number of provisions including the Mortgage Disclosure Improvement Act, which changes the Truth in Lending Act requirements surrounding early and final disclosures to home buyers and addresses the timing of when fees can be charged.

4 Key Elements You Need to Know

1) If the home buyer is financing the property, these new regulatory and investor guidelines will impact – and could even dictate – the closing date. Historically, home buyers 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, purchase 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 purchase transaction can close – that is facilitate with a mortgage – is 7 business days after the home buyer is issued his or her initial mortgage disclosures from the lender.

2) Up front fees cannot be collected by the lender (except for a credit report fee) until the initial disclosures are received. If the disclosures are overnighted, they are considered “received” the next business day – allowing the fees to be collected on the following business day. Historically, up front fees could be collected immediately. Starting July 30, 2009, up front fees can be collected immediately when the application is taken in person and the home buyer receives his or her initial disclosures. The only exception is the credit report fee which can be collected at application.

3) The home buyer must be provided with a copy of his or her appraisal a minimum of 3 business days prior to closing. To help expedite the process, Wells Fargo Home Mortgage has elected to have a copy of the appraisal issued directly to the home buyer – and the home buyer must receive the appraisal at least 3 business days prior to the mortgage closing. This means the home buyer may receive his or her appraisal before or simultaneous to the lender receiving their copy. If the home buyer 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 home buyer The home buyer must receive a revised TIL disclosure at least 3 business days before closing, providing the home buyer with enough time to determine if the home buyer is comfortable with his or her loan choice. If mailed, 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 home buyer’s APR. Therefore it is critical on the front end to ensure the estimated fees are as accurate as possible.

Frequently Asked Questions

1) How do these new requirement impact applications taken prior to their effective dates?
For HVCC, applications with an identified property prior to May 1, 2009 are not impacted. For HERA, applications with an identified property prior to July 30, 2009 are not impacted.

2) Do the timing requirements for the issuance of the initial disclosure and re-disclosure, and fee collection apply to investment properties?
No. These requirements only apply to primary residence and second home transactions.

3) The final TIL must be received 3 business days prior to closing. Is that 3 full days?
Remember, we must allow 3 business days for mailing, then the home buyers have the 3-business-day review period required to determine if they are comfortable with their loan choice. Closing can occur on the third business day after receipt.

4) What if the home buyer adds a home equity loan or line of credit after the initial application? How are disclosures impacted?
Home equity loan: The initial disclosure period starts over all disclosures must be issued for the home equity loan. Home equity line of credit: There is no impact.

5) What if the home buyer is delayed in paying his or her up front fees?
If the up front fees are not provided by the home buyer in a timely manner, this will likely impact the lender’s ability to order certain vendor services (e.g., the appraisal) and move forward with processing the loan until the up front fees are received. This could affect our ability to provide the best level of service and to meet the desired closing date.

6) Can last minute/rush deals still be accommodated?
The new regulations and investor guidelines definitely redefine “rush.” The minimum number of days to close a transaction is 7 business days after application (or 7 business days after the initial disclosures are issued). Remember, however, this would be a best-case scenario. If the APR increases by more than .125%, a Pre Closing TIL will be required and will add an additional 7 business days to the timing. This allows 3 business days for mailing and provides the home buyers with the time required to determine if they are comfortable with their loan choice. It is wise to plan on a minimum of 30 days to close.

7) Can the credit report fees be collected at the time of applications?
Yes. The credit report fee is the only fee that can be collected at application.

8) When a phone application is taken, can a post-dated check, credit card or other payment information be collected and held until up front fee payment is allowed?
No. Fees or payment information cannot be collected prior to the allowed up front fee collection date which is the next business day after the initial disclosures are received. If this is an in-person application, issuance of disclosures and collection of up front fees may happen on the same day.

9) Can fees be collected at an in-person application?
During an in-person application, fees may be collected after the home buyer is provided his or her initial disclosures (TIL) and required signatures are received.

10) How do you know if the initial APR has to be re-disclosed?
An APR increase of more than .125% from the initial TIL requires the lender to update and re-issue – and the home buyer to receive – the new and final APR via the Truth in Lending (TIL) disclosure (referred to by Wells Fargo Home Mortgage as the Pre Closing TIL) a minimum of 3 business days prior to the closing date. If the change is less than .125%, then no re-disclosure is required.

11) For the purpose of these new disclosure timelines, what is considered a business day?
Which holidays will not be included as business days? At Wells Fargo Home Mortgage, all weekdays and Saturdays are considered a business day unless it is a Federal holiday. Federal holidays include: New Year’s Day, Memorial Day, Independence Day, Labor Day, Veteran’s Day, Thanksgiving Day, and Christmas Day.

12) Let’s say there are two homebuyers applying for a loan, however, only one is present at the in-person application. In this scenario, would the home mortgage consultant be allowed to collect up front fees at the time of application from the home buyer who is present?
Fees cannot be collected until both parties have received the initial disclosures. If the in-person applicant is provided with two copies at application, receipt of disclosures by the second party will need to be verified prior to collecting fees.

13) Fees may not be collected from the home buyer until the next business day after the initial disclosures are received (unless an in-person application was taken). Can seller-paid fees be collected before that time?
For example, it is common in some areas that the seller pays the appraisal fee. No, the home buyer on the application must have received the initial disclosures before the seller can pay the appraisal fee on their behalf.

14) Can the TIL re-disclosure be sent within the 7-business-day period from when the initial disclosures are issued?
Yes, the required re-disclosure of the Pre Closing TIL can be sent within the first 7-business-day period.

15) Can the loan be locked at the time of application if fees have not been collected yet?
Yes.

16) Do these regulations and investor requirements only impact purchase transactions or are refinances subject to these same guidelines?
Both purchase and refinance transactions are impacted.

17) Is the 3-business-day right of rescission still in effect?
Yes, the right of rescission is still in effect for refinance transactions. The loan can close 7 business days after any TIL re-disclosure is issued, then the right-of-rescission period begins. The loan can fund after the rescission period expires.

Contact me with questions you may have