New Mortgage Regulation

The Housing and Economic Recovery
Act of 2009 (HERA) is a wide-ranging
piece of legislation that strengthens and
modernizes the regulation of government-
sponsored enterprises Fannie Mae
and Freddie Mac, along with the Federal
Home Loan Banks.

Part of HERA imposes sweeping changes
in the lending industry, placing greater
focus on consumer protection. HERA
aims to assure borrowers are better
informed about the loan process and
better protected against deceptive lending
practices.

These changes, effective July 30, 2009,
will have a direct impact on how
Realtors structure their transactions
and how lenders keep the consumer
informed of loan charges through stricter
disclosure requirements.

Four Key Elements

1. If the home buyer is financing the
property, the new regulatory and
investor guidelines will impact and
perhaps even dictate the closing date.
In the past, the parties to the transaction
agreed upon a closing date and all
service providers, including the lender,
worked to meet that date. After July 30,
a closing date may still be written into
the contract, but the earliest any home
purchase transaction can close is 7 days
after the homebuyer receives the initial
mortgage disclosures from the lender.

2. With the exception of the credit
report fee, the lender cannot collect
upfront fees until the initial disclosures
have been received. Disclosures that
are overnighted are considered “received”
the next business day (except Saturdays),
allowing fees to be collected the following
business day.
Historically, lenders could collect upfront
fees immediately at the time of application
for both telephone and in-person
applications. Now, the buyer must receive
initial disclosures before any fees can
exchange hands. The single exception
is the credit report fee, which can be
collected at the time of application.
If a lender takes an application in person
and delivers the disclosures at that time,
the fee can be accepted at that time as
well.

3. The homebuyer must receive a
copy of his appraisal a minimum of
3 business days prior to closing.
A homebuyer who believes the required
3-business-day review period is not
necessary may waive that requirement in
writing.

4. Any increase of more than .125%
in the Annual Percentage Rate (APR)
from the initial Truth in Lending
Disclosure (TIL) requires that the TIL
Disclosure be revised and reissued to
the homeowner.

The homebuyer must receive the revised
TIL Disclosure at least 3 business days
before the closing. If the TIL is mailed, it
is considered “received” 3 business days
after the mailing.

It is typical for many details to change
during the course of the transaction,
including the APR, which can delay
the closing. The APR can be impacted
by many details of the market and the
transaction, including an unlocked rate,
a change in the loan amount, a change
to a different loan product, a rate relock
because of market improvement, a
change in closing date, and changes to
fees associated with the transaction. If
the closing date is critical, it is imperative
that the lender ensure that the estimated
fees are as accurate as possible.