New Government Regs Will Cause Delayed Closings and Broken Rate Locks – Unless You Heed My Advice.

(Originally published July 12, 2009.)

On July 30, 2009, the Mortgage Disclosure Improvement Act takes effect. MDIA was passed in 2008 as part of the Housing and Economic Recovery Act. MDIA affects the disclosure process for mortgages and is intent on providing additional consumer protection and transparency over the existing Truth in Lending rules.

It’s important that attorneys, realtors, and borrowers alike understand the ramifications MDIA will have on their transactions in order to avoid potential problems such as delayed closings and lock expirations.

• Just as before, initial disclosures must be provided to mortgage applicants within three days of application. However, beginning July 30^th, no fees may be collected from the borrower, including an appraisal fee, until after the borrower is provided these disclosures plus a three day waiting period.  Therefore, the appraisal can not be ordered, until three days after the applicant receives the Truth in Lending disclosure.
• Any increase in the APR by more than 1/8% will require redisclosing a new Truth in Lending disclosure.
• The borrower must receive the revised, or final TIL disclosure, at least three days prior to closing. In addition, the initial TIL disclosure must be received by the borrower at least seven days prior to the closing.
• The borrower must be provided with a copy of his or her appraisal a minimum of three business days prior to closing. The appraisal is considered “received” three business days after mailing.

Whether or not MDIA actually protects borrowers from unscrupulous lenders remains to be seen. For now, the only definite result is that MDIA will cause more confusion with borrowers, as well as more paperwork and delays in processing mortgage loans.

How can you minimize the delays? Home buyers should apply for their mortgage BEFORE the contract of sale is fully executed. No upfront fees will be collected and the appraisal will not be ordered until the contract of sale is finalized. By then, the required disclosures and waiting periods will have been met. For those refinancing, ideally, I’d recommend applying before you lock. However, if you’ve locked at application, much needs to happen within a relatively short period of time. In order to avoid blowing your lock, make sure you IMMEDIATELY submit everything requested by your lender.

Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products and wealth-creation strategies.