Understand how new lending requirements affect you-President's message
In an effort to better protect
the consumer from predatory lending, the government has put in place a new set
of lending regulations. Designed to give the consumer more time to review
disclosures and mortgage costs, the new requirements may also increase the timeframe
for closing on a home. The following is a quick review of what buyers should
expect under the new process.
The first big change is that
mortgage lenders are now required to provide consumers with a good-faith
estimate of the loan costs, called “early disclosures,” at least three days
after the borrower applies for a loan. The consumer then has seven days to
review the disclosures before the loan can close. Even if the consumer wants
less time for review, the lender cannot close the loan until the seven review
days have passed.
Another change is the fact that
lenders must provide consumers with the early disclosures before collecting any
fees, except for a reasonable fee to obtain a credit report. Only after the
borrower has received the initial disclosures can the lender collect fees from
the home buyer.
Finally, the new regulations
require the lender to provide the consumer with new disclosures every time the
annual percentage rate changes by more than .0125 percent. The buyer then has
another three business days to review the updated disclosures before the loan
can close.
While the mandatory seven- and
three-day wait periods are designed to give buyers adequate time to review
their mortgage obligations, they can also delay closing dates if last-minute
changes are made to the loan.
For example, let’s say a
borrower locks her interest rate a few days before the scheduled closing date.
If the APR has changed more than 0.125 percent from the initial disclosures,
the lender will be required to send updated disclosures and a mandatory
three-day review period will be required, which could unexpectedly delay the
scheduled closing date. The delay could be even longer if the disclosures are
mailed.
That’s why it’s important for
buyers to talk to their loan officer about changes that could affect their
closing date. They should keep their Realtor informed of their progress so they
can amend and extend their purchase contract if necessary. Potential items that
could change the loan’s APR are an interest rate lock or re-lock, a
modification to the loan amount, a rescheduled closing date or a change in the
loan product.
Because these items as well as
many others could change the APR, thereby affecting the closing date, many
major lenders are advising buyers to plan for escrow periods of at least 30- to
45-days. Lenders are also encouraging buyers to lock their loan’s interest rate
as soon as possible, preferably 10 days before the scheduled closing.
With all these rules, some
buyers may wonder whether they can waive the mandatory wait periods. Although
the government has said the rules are not required in a bona fide financial
emergency, buyers should not count on having the wait periods waived. The
government has said waivers will only be allowed in extreme circumstances.
Along with the consumer
protections described above, which apply to all mortgages secured by a
borrower’s home, a separate regulation provides home buyers with the right to
review their appraisal at least three days before closing. Unlike the
requirements described above, the borrower can waive this right if he or she
desires.
Taken together, the new changes
to the lending rules are designed to protect consumers and give them time to
make informed decisions. For more information about the home-buying and
financing process, contact a local Realtor and mortgage officer.