Beginning July 30, 2009 all mortgage applications must comply with the Mortgage Disclosure Improvement Act (MDIA) which was passed into law as a part of the Housing and Economic Recovery Act of 2008.
The objective of MDIA is to protect consumers & improve the consistency of the Truth-in-Lending disclosures (TIL) that applicants get from lenders at the outset of a new loan application.
However, there are provisions embedded within this law that real estate professionals & consumers should be aware of because they may end up delaying scheduled closings if the lender is not adhering to the requirements.
Here are the highlights of this new law along with a brief explanation of the potential impacts and recommended solutions so that they don’t impact your transactions:
1) Cannot order appraisal until TIL has been signed: Under the new law lenders must receive back a signed initial TIL before they can order an appraisal.
Potential Impacts: Even if the lender sends the initial TIL within the required 3-day time frame, they may not be able to proceed with the processing of the loan if the applicant does not return the signed disclosure promptly. This coupled with the impact of the HVCC appraisal rules create an even longer turn time for receiving appraisals back. Furthermore, this requirement will prevent applicants from switching lenders once they’ve begun the process of applying for a mortgage because if the applicant tries to switch lenders the clock restarts.
Recommended solution: If the applicant meets with the lender at the outset of the application in a face-to-face meeting and signs the initial TIL then the lender may order the appraisal immediately.
2) 7-Day Waiting Period Before Closing: Under the new rule, the loan cannot close earlier than the 7th business day after the initial TIL is delivered or placed in the mail to the borrowers.
Potential Impacts: This prohibits from lenders conducting “quick closes”. Currently, in some instances a mortgage broker may transfer a loan application from one lender to another at the last minute to achieve a better interest rate for the applicant OR because the new lender has an underwriting flexibility that the applicant needs in order to be approved for the loan. Anymore, the applicant will have to wait at least 7 business days from the moment that the new lender sends out their initial TIL to close on their loan.
Recommended solution: It is now even more important that borrowers work with true mortgage professionals who are knowledgeable and thorough so that any potential “red flags” are identified and resolved at the outset of the application. Otherwise, the mortgage is almost certain to be delayed.
3) APR Change Outside Tolerance/Corrected Disclosures: If the APR disclosed on the initial TIL later increases or decreases by more than .125%, a corrected TIL must be RECEIVED by the borrower no later than 3 business days before the date of the closing. If the corrected TIL is mailed the lender must allow 6 business days to pass for the borrower to review, before closing.
Potential Impacts: From the moment the initial application is taken to the closing table there can be variables that change which can also impact the APR (i.e. closing date, locked interest rate, percentage of down payment). Should any of these variables change and the lender neglect to send out a new TIL, the transaction will be delayed by at least 3 business days for the new TIL to be reviewed by the applicant.
Recommended solution: Work with reputable lenders who are upfront, honest, and knowledgeable about the industry. Now more than ever honest upfront disclosures will literally make the escrow process go smoother.
Click this link to watch a 7:00 minute movie summarizing the new rules.
