ShirLees Happenings Blog

New Mortgage Disclosure rules may delay closings: MDIA-08 Effective 7/30/09

Mortgage Disclosure Improvement Act of 2008

Effective July 30th ,2009; the Federal government has put in place new regulations which will dramatically affect how real estate closings are scheduled!!!

Currently when a consumer applies for a mortgage loan, the Lender is required to send out various disclosures within 3 business days, which contain the details of the loan the consumer has applied for. Should there be any changes to the terms of the loan for which the consumer has applied; the Lender typically re-discloses the amended terms during the processing of the loan. There is currently no time frame for redisclosure. As such, should there be any changes just prior to closing, a previously schedule closing can typically continue as planned. The new regulations will mandate various waiting periodsif redisclosure is required. Even though the regulations provide for a ‘hardship" waiver, you can expect that Lenders will not grant these during the normal course of business. Specifically, the new mandated time frames are:
No closing can be scheduled for at least 7 business days from the initial disclosure of the loan.
If the loan requires redisclosure, there is a mandatory 3 day waiting period.

Whereas the above may not seem to be a big change, there are a number of issues which can be expected to arise: The minimum time frame to close a transaction will now be at least 7 business days.
Closing dates will now be subject to possible delays if the loan has to be re-disclosed based revised APR calculations.

As you know, the final "numbers" for a typical real estate transaction are generally not available until just prior to closing when the settlement agent (Attorney, Title Company) prepares the preliminary HUD-1 Settlement statement. Since there are many parties to a typical transaction, there is no way to definitively know what the actual charges on a transaction are until this time. However, the Lender, by law, has to estimate these charges up front on the borrower's Good Faith Estimate and Truth-In-Lending Statement.
The new regulations have mandated re-disclosure if the final numbers on the transaction differ by more than:
a) An increase of .125% in rate on the APR
b) An increase of $100.00 in finance charge (includes attorney and title charges)

The key to successfully managing your transactions will be to understand what can "trigger" a re-disclosure and a mandatory waiting period. Below are some examples:

The borrower chooses to pay points on a loan for a lower rate after the initial disclosure
The borrower chooses to lower their down payment and increase the loan amount
The borrower chooses a buy down of their rate
The per diem interest changes based on the actual closing date
The borrower opts to "float" their rate and locks in close to the closing date, however the rates have risen and their final rate is higher
In the past we have often allowed a borrower to float up until the last few days prior to closing, this will force us to limit the time they are allowed to float to assure a timely closing
The initial estimated charges which impact the APR increase by more than $100.00. (includes attorney and title charges)
A new borrower is added to the loan after the initial application
The borrower decides to change the type of loan for which they are applying
The above are but a few of the situations which are normally encountered during a typical transaction which can affect a closing date.

In response to the above you can expect that lenders will begin to impose strict time frames on real estate transactions. As the industry absorbs these changes I will make sure to keep you informed. In the meantime, I strongly suggest that you begin discussions with your service providers to make sure that they are aware of these changes and plan accordingly. It is much better to anticipate problems and avoid them, than to have to call a borrower with the news that their closing has to be delayed. Customer service is what should drive all of us. There is no better way to guarantee future success than to take care of our current customers!!!

This is a case of regulations that are coming into play that may actually hurt the consumer, much the same as the Appraisal changes this year. There is a fight going on in DC over each of these since the seem to do more harm than good, but for now we have to deal with higher appraisal costs along with potential delays. But if we manage it well up front we can avoid some of the pain