Sound Mortgage Planning Blog

The mortgage industry is undergoing many changes to help provide homebuyers better information when it comes to financing a home. One part of these changes is the Home Valuation Code of Conduct (HVCC) which was put in place effective may 1, 2009, to promote the accuracy of appraisals by shielding appraisers from undue influence and ensuring borrowers have sufficient notice of appraisal content by requiring borrowers receive a copy of their appraisal reports no less than three days prior to the closing of their loan.

The newest change effective for all new loan applications taken on or after July 30, 2009, The Housing and Economic Recovery Act (HERA) amends the Truth in Lending Act (TILA), implemented through Regulation Z. HERA has a number of provisions including the Mortgage Disclosure Improvement Act, which changes the TILA requirements surrounding early and final disclosures to homebuyers and addresses the timing of when fees can be charged. It also requires a No Requirement to Complete Statement. This statement, which must be included on early disclosures and subsequent disclosures, must contain a clear notice stating "You are not required to complete this agreement merely because you have received these disclosures or signed a loan application."

The revised rule prohibits creditors (lenders), mortgage brokers and any other person from imposing any fee other than a bona fide and reasonable credit report fee until the consumer has received the initial disclosures. For U.S. Mail, the disclosures are considered received 3 business days after they are sent. For E Mail or Overnight Delivery, the disclosures are considered received once confirmation receipt is obtained by the Lender/Branch.

The business day definition, for the purpose of the waiting period, is the same as the definition used for rescission, Monday through Saturday, excluding legal public holidays. NOTE: Saturday will only count if the Lender/Branch can show that Saturday is a standard business day for that Lender/Branch.

If fees change and the APR increases at any time in the process or at closing (document signing) by more than 0.125% from the previously disclosed APR, a re-disclosed TIL must be provided. The loan cannot close (document signing) for 3 business days after the above outlined waiting periods are met based on delivery method.

While other changes may impact the APR, here are some of the most common items that will cause a re-disclosure period:

• Rate Lock (at different terms) occurring after initial disclosures are issued.
• Renegotiation of initial lock (disclosed) terms.
• Change in loan amount.
• Product change.
• Change in Closing Date.
• Increase or addition in fees.

F.A.Q.

What type of transactions does this regulation affect?

These requirement only apply to primary residence and second home closed end transactions for both Refinances and Purchases.

What if the borrower adds a home equity loan or line of credit after the initial application? How are disclosures impacted?

• Home equity loan: The initial disclosure period starts all over and all disclosures must be issued for the home equity loan.
• Home equity line of credit: There is no impact.

How do these new regulations impact escrow states?

An initial HUD1 must be provided to the Borrower before closing documents are released. In addition, fees can no longer be estimated. If fees change and result in an increase in the APR of more than 0.125%, it will result in re-disclosure of the TIL and delay the signing/closing date by the required delivery/receipt timeframe depending on delivery method, plus three business days for review.

Can the credit report fees be collected at the time of application?

Yes. The credit report fee is the only fee that can be collected at time of application.

How do you know if the initial APR has to be re-disclosed?

An APR increase of more than 0.125% from the initial TIL requires re-disclosure of the new and final APR via the Truth in Lending (TIL) disclosure a minimum of 4-7 business days (depending on delivery method) prior to the close date. If the change is less than or equal to 0.125%, then no re-disclosure is required.

Fees may not be collected from the Borrower until 1-4 business days (depending on delivery/receipt method) after the initial disclosures are issued. Can the Lender/Branch-paid fees be collected before that time? For example, it is common in some areas that the Lender/Branch pays the appraisal fee.

No, the borrower on the application must have received the initial disclosures before the Branch can pay the appraisal fee on their behalf.

Can the loan be locked at the time of application if fees have not been collected?

Yes.

Is the 3-business-day right of rescission still in effect?

Yes, the right of rescission is still in effect for refinance transaction. The loan can close 4-7 business days (depending on the delivery/receipt method) after any TIL re-disclosure is issued, the the right-of-rescission period begins. The loan can fund after the rescission period ends.