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Housing and Economic Recovery Act of 2009 (HERA) Coming July 30

The next part of the government’s mortgage reform comes into effect on July 30th.  The new rules in the Disclosure Improvement act have to potential to slow a transaction down by increasing disclosure periods in the Truth and Lending Act.  The danger of delay is probably greatest when the buyer holds off locking the interest rate to the latest possible moment or switches lenders when the transaction is nearing closing.   The following is part of the four page PDF that I received.  It does not state who the author is (appears to be the mortgage industry):

Three key elements you need to know

1-lf the borrower is financing the property, these new regulatory and investor guidelines will impacted could even dictate-the closing date.

Historically, borrowers and sellers would agree on a closing date, and then service providers – including mortgage brokers and lenders – would work as best they could toward meeting that date. Going forward, contracts can still be written with a specific closing date in mind, but all parties need to take into account that the earliest any home financing transaction can close is 7 business days after the borrower is issued their initial mortgage disclosures from the lender. (Note: Saturdays, with the exception of Federal holidays, do count as a business day for the purpose of disclosures only.)

2-The borrower must be provided with a copy of the appraisal a minimum of 3 business days prior to closing. The appraisal is considered ” received” 3 business days after mailing, not counting the day mailed or 3 days after emailing including the day emailed.

If the borrower believes the 3-business-day required review period is not necessary for whatever reason, he or she has the right to waive that requirement. (Some lenders are erring on the side of caution and have indicated they will not honor these waivers).

3-An increase of more than .125% in the Annual Percentage Rate (APR) from the initial Truth in Lending Disclosure (TIL) requires the TIL disclosure to be revised and reissued to the borrower. The borrower must receive a revised TIL disclosure at least 3 business days before closing, providing the borrower with the time required to determine if the borrower is comfortable with the loan choice. Same mailing rules as above.

A more typical contract date may be 30-45 days – or possibly longer (such as with a new construction loan). Considering that many things occur and may be changed or finalized throughout the course of the transaction, there are a number of things that can impact the borrower’s APR. Therefore it is critical on the front end to ensure that estimated fees are as accurate as possible. Some of us might choose to replace the word accurate in the last sentence with the word HIGH thereby reducing the number of times we subject everyone to the clock resetting because of changes.

One Comment on “Housing and Economic Recovery Act of 2009 (HERA) Coming July 30

  1. I stumbled across your website when looking for more information on the effects of HERA and HVCC. The content of your post was from a announcement/explanation that Wells Fargo Wholesale Lending sent out to their clients, we mortgage brokers (perhaps they also sent it internally to their own loan officers). It was one of the better explainations, and I kept it to help me communicate with my borrowers; and recognized it immeidately.

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