As of July 30, 2009 certain provisions of the Mortgage Disclosure Improvement Act (“MDIA”) went into effect. Although enacted to protect consumers, these provisions may delay closings and cause borrowers to lose anticipated loan interest rates when a closing is required to be delayed past the expiration date of a rate lock.
This happened to clients of mine that were supposed to close today. I received an email Friday evening that the closing needed to wait the time period as required to the MDIA.
Michael Chavkin a Mortgage Loan Officer with Bank of America (646-556-0141) sent an email with a breakdown of the changes. Thank you, Michael. My comments are in italics.
Mortgage Disclosure Improvement Act (MDIA) amendments to the Truth in Lending Act (TIL) — also known as Regulation Z — that are designed to allow homebuyers adequate time to review specific information related to their loan. Changes include:
Initial TIL disclosure. A seven-business-day waiting period (business days include every day except Sunday and holidays) is now required between the delivery of initial disclosures and the signing of closing documents. This means that before a borrower can close on a transaction the borrower must receive the initial Good Faith Estimate (GFE) and initial TIL statement disclosing the final Annual Percentage Rate (APR) seven days prior to closing. This will eliminate the possibility of closing in less than seven business days unless the borrower faces a bona fide personal financial emergency. There is nothing concrete on what a “bona fide personal financial emergency is. I suspect a home being sold in foreclosure would be a qualifying emergency. From the information that I have been reading in order to modify or waive a waiting period, the borrower will have to give the lender a dated written statement that describes the emergency, specifically modifying or waiving the waiting period signed by all of the borrowers for are primarily liable for the legal obligation. It is my understanding that if there is evidence by the lender of actual receipt (fed ex or other overnight delivery) you can start sooner and do not need to wait the until the third business day.
Up-front fee collection. Up-front fees cannot be charged until after the borrower receives the initial disclosures. If disclosures are mailed, the fee is charged the fourth business day after mailing. If disclosures are hand-delivered, the fee is charged the same day. It is my understanding that the MDIA permits charging an up front credit report fee at the time of the application.
Redisclosed TIL. If the interest rate or fees change, causing the APR to increase or decrease by more than 0.125% then a revised TIL must be sent to the borrower so that the customer receives it no fewer than three business days prior to closing. If there is an increase or a decrease by more than 0.125% then there must be disclosure. Each time the TIL is redisclosed, the waiting period starts over and could affect the original closing date. If the rate is in float status, a redisclosed TIL will not be provided each time there is an APR increase. Redisclosure should be sent, if needed, eight business days before the estimated closing date.What can we do to ensure timely closings?
Together, we ( the lender) can work to communicate this information, set appropriate expectations, and ensure timely closings for your clients, making sure to:
Provide timely communications about settlement information to the borrower and escrow;
Encourage borrowers to lock in rates early enough to allow time for redisclosure, if required;
Ensure the accuracy of communications to the borrower regarding any third-party fees that may affect the APR.
Potential Occurrences that have Impact to APR:
• Unlocked rate
• Changes in loan amount
• Product change
• Changes in closing date
• Changes to fees, inclusive
of settlement agent fees
All parties participating in a real estate closing transaction should keep in mind that their actions may affect the time line of the ability of purchaser/borrower to close by a certain date.
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