New Mortgage Regulations

The Housing and Economic Recovery Act of 2009 (HERA) is new piece of legislation that went into effect July 30th. The legislation, passed with the intent to improve consumer protection, imposes sweeping changes to the mortgage industry and aims to assure borrowers are better informed about loan processes and better protected against deceptive lending practices.

The key elements of the legislation are:

1. There must be a minimum of 7 days after buyer receipt of initial disclosure documents, before a real estate closing may take place.  This allows enough time for the purchaser to fully go over, get counsel, and understand the loan they are about to take.
2. NO UPFRONT FEES may be collected by lender until initial disclosures have been received.  The only exception to this is a nominal fee for a credit report.
3. The buyer MUST receive a copy of their appraisal a minimum of 3 business days prior to closing.  If the buyer does not feel they need a full 3 business days for review, they may waive this requirement.  The waiver must be in writing.
4. If the interest rate for the loan increases by more than 1/8% (.125%) from the initial truth in lending disclosure, the lender must issue a revised truth in lending disclosure with the correct interest rate information.  Once received the borrower will have 3 business days to review before closing can take place.

These new requirements put pressure on the lender to do things the right way, however, they also present challenges to your real estate broker.

In Colorado, when you enter into a contract to purchase a home,  the buyer agrees to certain dates that must be  adhered to.  The biggest one is the closing date.  There is also an agreed to date, the “Loan Conditions Deadline,” by which the lender must have all the “hurdles” jumped.  If this date passes, the buyer’s earnest money becomes non-refundable.  During contract negotiations, the buyer pushes for an extended date, and the seller wants it to be as early as possible.

The reasons are simple.  This deadline allows the buyer to walk away from a contract, with their earnest money, if they aren’t able to get a loan that, in their subjective discretion, does not work for them.  Hence, the seller wants this deadline to be as short as possible, so as to minimize their risk of the loan not going through.

Here’s the tricky part.  There is a very real scenario of the loan conditions deadline passing (read earnest money is now at risk,) the lender has not given disclosures, triggering the legislated 7 day waiting period, and the buyer not being able to close on the contractually agreed to closing date.  This has the potential to cost the buyer their earnest money deposit as well as their dream home.

The solution is pretty simple.  Make sure you choose your mortgage lender and real estate broker carefully! The proper choice of these professionals, ones that do things the right way, track your transaction, and keep you informed, will all but eliminate the problem!

Related articles by Zemanta

• New Appraisal Regulations Could Hold Up Your Next Transaction… (stroupecondoblog.com)