Effective on all mortgage loans originated on or after July 30, 2009
FEDERAL LAW WILL ADD UP TO 6 BUSINESS DAYS TO CLOSING DATES
A NEW Federal Law will now dictate the closing date on all real estate sales and refinance transactions in which a mortgage is obtained.
HERA- Housing and Economic Recovery Act.
HERA was passed by Congress to protect the consumer and allow more time for the borrower to review specific details of the mortgage before closing.
Four key elements you need to know
If the borrower is financing the property, these new Federal regulatory guidelines will impact and could even DICTATE the closing date.
Historically, borrowers and sellers agreed on a closing date in the sales contract, and then mortgage lenders and closing attorneys 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 closing date may be forced to change due to the new Federal Guidelines of HERA. Some key factors real estate agents, home sellers and homebuyers must know in order to understand the impact this new law will have on their closing date:
Borrowers must be provided with a written Truth in Lending Disclosure (TIL) by the end Investor (not the loan originator or the mortgage broker). The TIL spells out the end Investor’s interest rate on the loan, along with the end Investor’s best estimate of ALL the closing costs, including lender-required escrow account establishment and "odd-days interest". Borrower cannot pay for the appraisal until four (4) business days after being given the TIL. Lender cannot order the appraisal before four (4) business days after the borrower was given the TIL.
If the APR (Annual Percentage Rate) changes more than 1/8 of 1% a new Truth in Lending Disclosure must be provided to the borrower. The law requires three (3) business days for mail and an additional three (3) business days for the borrower to review the new TIL before closing can occur. The loan cannot close until the total six (6) business days have passed from the date the Lender mailed the updated TIL to the Borrower.
Borrowers must lock their interest rate a minimum of ten (10) business days prior to closing to ensure the TIL will not have to be re-disclosed and the file will not have to go back through underwriting.
Things which could cause the APR to increase and require that a new TIL be provided are:
Change to the Sales Price (price dropped in lieu of repairs, price raised to include upgrades, etc)
Change to the Loan Amount
Change to the Closing Date
Change in the Interest Rate
Change to the Loan Program
Re-Inspection or multiple inspections by appraiser for completion or repairs
HERA not Hare
Many Lenders will elect to disclose a full 30 days of "Odd-days Interest" and a full 12 months of taxes to prevent a closing delay due to these new HERA re-disclosure requirements.
This could cause some borrowers to need more funds verified for underwriting approval than in the past when actual escrow amounts were used.
HERA is a Federal Law that impacts all Mortgage Lenders nationwide.
The price of protection to the borrower could be delays to the closing date.
What good Realtors should do:
Allow a minimum of 45 days for closing; 60 would be better.
Encourage buyers to lock in their interest rates and loan programs as soon as possible in advance of the closing date.
Once a Binding Agreement is reached, don’t change anything unless absolutely necessary. Every change = minimum six (6) day delay in closing!
Metro Brokers Financial, Inc., 5775-D Glenridge Drive, Suite 200, Atlanta, Ga. 30328 A Georgia Residential Mortgage Licensee # 5892. NMLSR Unique Identifier # 163853. 404-847-2525