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Will the new Mortgage Disclosure Act change your closing times?

Saturday, July 18, 2009 - Article by: Lender411 Member

Our business has been challenging in the last few years. It promises to get a little more challenging at the end of this month.

In an effort to provide consumer protection and transparency when the buyer gets a mortgage, the Government has made law changes to mortgage loan processing and disclosures that take affect on July 30, 2009.

The Government is committed to making sure borrowers completely understand the terms and conditions of their mortgages and are given ample time to review what they are agreeing to.

It's called the MORTGAGE DISCLOSURE IMPROVEMENT ACT OF 2009. You may have already seen an email from a mortgage representative about it. Some banks have already been preparing real estate agents for the changes that will soon occur.

Here is what you need to know about it.

These changes will effect the processing times of loans and, potentially, your business as well. By being proactive and understanding the new Act, your closing dates should still occur in the 30 to 45 day timeframes you are used to.

Initial disclosures must be provided to applicant within three days of loan application. No fees can be collected during this three-day waiting period, except for a reasonable credit report fee.

To simplify, when a borrower makes application, the lender will present them initial disclosures. You have probably seen the disclosure package. It's a stack of forms that includes the Good Faith Estimate, Truth in Lending disclosure, and other legal forms as required by law.

The lender won't be able to collect any fees for appraisals until the borrower has had at least three days after getting the disclosures for review. This means the appraisal report cannot be ordered until after the three-day waiting period after initial disclosures.

The borrower must get these disclosures again at least seven business days before he signs his loan docs. If he doesn't, your closing will be delayed until he does get them and the seven-day period for review has passed.

The borrower must be provided a copy of his appraisal a minimum of three days prior to his loan closing. If he doesn't, your closing will be delayed until he does get a copy and the three-day window for review has passed.

Any increases in fees that result in an APR change of 0.125% of the loan amount require re-disclosure. The borrower must then get his new disclosures and wait at least three days for review to close. Once again, this is being done to make sure the borrower has time to review what he is getting and be comfortable with it.

You know those times your buyer was surprised by his closing costs at close? When that happens now, if the numbers are too far off from what he was disclosed, he will have to leave the closing table, get new disclosures, get time to review, and will be unable to return for three days.

The only exception to this will be if it's an emergency like the home will be foreclosed on.

Also, keep in mind, if your buyer changes lenders in the middle of the process, the new lender will have to start the disclosure process once again. Changing lenders in the middle could result in lengthy extensions.

Many borrowers today are often too busy to come to the office to make application. These borrowers do it conveniently by phone or online. In these cases, the disclosures are mailed to them. As a result, the timeframes and wait period will be slightly longer.

Most lenders are estimating these changes could add three to 10 days to your closing times. Please plan accordingly.

So, let's say your buyer wants to close as quickly as possible. What can he do to be proactive and make sure the closing time is fast as possible?

1) Make application with his lender in person.
2) Get the lender a fully executed, clearly legible copy of the purchase agreement as soon as it's available.
3) Be ready to pay for the appraisal when asked.
4) Get in all of his requested documentation (pay stubs, W2's, bank statements, etc.) within a day or two of application.
5) Carefully review his disclosure package and notify his lender of any corrections immediately.
6) Lock his loan at the time of application or early in the transaction.
7) Choose a credible, reputable, ethical lender he can trust to honor the rates and fees they disclose. Surprises at the closing table will result in lengthy delays.
8) Choose a lender he has confidence in. Changing lenders while in escrow will result in a lot of these disclosure clocks starting over.

If he does all of the above, there is no reason your buyer's 30 to 45 day closing times should be affected by this Act.
It's important to understand that this Act has been put in place so the buyer has time to make good, sound, responsible decisions that he fully understands about his loan.

If the buyer doesn't have that urgency, like he wants to float his interest rate, or he needs to apply online or by telephone, or he wants to delay ordering the appraisal until he is fully approved for his loan, you will want to negotiate longer close dates.

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