GSM to present this slide HERA stands for Housing and Economic Recovery Act MDIA is the Mortgage Disclosure Improvement Act Passed in July 2008, effective 7/30/09 It not only impacts how we do business, it impacts our industry. It is a shift in our business culture. All lenders are required to comply. This is a federal requirement so no one is exempt. Excluded are lines of credit (HELOCs)
These changes provide a more level and fair regulation of our industry. With this regulation also comes consistent practices among all lenders and a level playing field. In addition, it provides controls to help protect consumers from lenders who employ practices that are deceptive. In the end, consumers will be better informed about the process, and more confident about their ability to make smart, informed choices.
Because of the inability to collect fees right away on non face-to-face applications, the appraisal cannot be ordered immediately. This may have an impact on deals with tight closing dates. As you’ll see in a minute, the regulations can also affect the closing dates in other ways …
The 7-day waiting period allows the borrower time to review disclosures prior to closing/sign date. It is like a cooling off period. This is the earliest closing date per regulation. “ Provided” is defined as delivering or placing in the mail – not when consumer receives disclosures. (Some parts of the regulations mandate waiting periods after the consumer receives the disclosures; it’s important to pay attention to the specific wording.)
If the APR increases by more than 0.125% after the initial TIL has been sent, one of the following must occur: Operations can work with the GSM to bring the loan back into APR tolerance OR A new TIL must be sent to the borrower, and the closing can’t occur until three business days after the borrower receives the new disclosures. During the time between contract and closing, many factors can occur that could conceivably affect the APR on the buyer’s loan. This means it is crucial that on the front end, the fees be estimated as accurately as possible (need for inspections, etc.) The APR threshold is being compared to the most recent TIL disclosure that was sent.
The loan amount could change; for example, due to: Change in amount of available assets Appraised value Borrower qualification The loan program changes – At the borrower’s request Due to borrower or property qualification
Today, we establish our closing dates on things like borrower request and contract dates. In the future we will need to also consider our earliest closing date as allowed by regulation. This means that we will need to allow time for the initial disclosures on rush files.
New Changes In Our Industry
Change in Our Industry RESPA Reform, Mortgage Disclosure Improvement Act and Truth in Lending
RESPA Reform <ul><li>RESPA (1974) : Designed to help simplify the mortgage shopping process and reduce consumer settlement costs. </li></ul><ul><li>RESPA Reform (2009) : Designed to make the process even more transparent and understandable for consumers. </li></ul>
New Federal Mortgage Regulations <ul><li>The M ortgage D isclosure I mprovement A ct (MDIA), part of the Housing and Economic Recovery Act, affects mortgage disclosures, closing dates and fees. </li></ul><ul><li>MDIA represents a major shift in the way our industry does business: All lenders (including brokers) must comply. </li></ul><ul><li>It affects all closed-end loans secured by real estate. </li></ul><ul><li>Compliance is required by July 30, 2009. </li></ul>
Expected Results <ul><li>More transparent, level and fair regulation of our industry. </li></ul><ul><li>Consistent lending practices among all lenders. </li></ul><ul><li>Additional controls to prevent deceptive lending practices. </li></ul><ul><li>Even more consumer protection. </li></ul><ul><li>Consumers that are better informed and more confident about the mortgage process. </li></ul>
Key Points for Associates: Fees <ul><li>As of July 30, 2009, no fees (except for a credit report fee) can be collected by the mortgage broker/originator until the initial disclosures are received by the borrower. </li></ul><ul><li>If disclosures are mailed they are considered “received” three full business days after mailing, allowing the fees to be collected on the fourth business day. </li></ul>
Key Points for Associates: Dates <ul><li>The earliest closing date is the 8th business day after initial disclosures are provided to the borrower. </li></ul><ul><li>An increase or decrease of more than 0.125 percent in the Annual Percentage Rate (APR) from the initial Truth in Lending disclosure (TIL) requires that a revised TIL disclosure be issued to the borrower. </li></ul>
Key Points for Associates: Dates <ul><li>If the TIL must be revised, the borrower must receive the revision at least three business days before closing. </li></ul><ul><li>Note that the TIL disclosure is considered “received” three business days after mailing. </li></ul>
Why Would the APR Change? <ul><li>The loan amount changes UP or DOWN . </li></ul><ul><li>The loan program changes. </li></ul><ul><li>Fees are higher than initially disclosed. </li></ul><ul><li>Additional fees not originally disclosed must be charged. </li></ul>
Changes That Will Not Affect the Truth in Lending Disclosure <ul><li>Changes in the mortgage-related fees that do not change the APR by more than 0.125 percent. </li></ul><ul><li>Change in fees that are not part of the APR calculation. </li></ul>
8/4 Borrower “A” Meets with GSM 8/3 Borrower “A” Rush Closing 8/12 Borrow “A” Closing/ Settlement 8/27 Closing date for Borrower “B” 8/25 Borrower “B” requests lower loan amt. Wait 3 business days 8/28 Borrower “B” New Closing date August 2009
How Do These Changes Affect You? <ul><li>When determining closing dates, allow appropriate time for disclosures. </li></ul><ul><li>Set expectations with buyers, sellers, other real estate agents and builders. </li></ul>Everyone must work together to meet the closing date!
<ul><li>This applies to all new loan applications submitted on or after July 30, 2009. </li></ul>REMEMBER: