10 August 2009

New federal rules protect home loan applicants-President's message

New federal rules protect home loan applicants

President’s Message

Chris Sloan


                With the implementation of new Federal Reserve regulations, home buyers now have a set of new protections and disclosures when they shop for a home loan. The rules, which took effect July 30, are designed to help consumers better determine whether a particular borrowing transaction is right for them.

                The disclosures are part of Regulation Z, the consumer protection provision of the Truth in Lending Act. They include a number of timeframes designed to give consumers the chance to review loan and other related documents. While the new measures are meant to provide more protection to consumers, home buyers should also know that the new requirements could potentially delay their scheduled closing dates.

Today I’ll review the new requirements so you’ll know what disclosures you should receive when applying for a home mortgage as well as the timeframes you should expect in the mortgage application and home-buying process.

                The new Truth-in-Lending requirements apply to all mortgages secured by the borrower’s home, including primary and second homes as well as refinancings. One of the key changes to the consumer-protection rules is a requirement that the lender provide a good faith estimate of all your projected mortgage costs within three days of your loan application.

Except for a fee for obtaining a credit report, lenders now cannot collect any fees until you receive and sign these disclosure documents. That means you won’t have any up-front application charges until you’ve received the Truth-in-Lending disclosures.

Another provision is the requirement that a home loan cannot close until the borrower has had seven days to review the initial disclosures. 

                The new regulations also require lenders to disclose if the annual percentage rate on your loan changes by more than 0.125 percent from the amount stated in the initial disclosure. The APR includes not only the interest rate but other costs related to settlement. That means there could be changes if you lock in your interest rate after your initial application, if you chose a different product or if a third-party vendor changes its fees.

If there is a change, the lender will be required to provide a corrected disclosure, and you will have three days to review the new disclosure before you can close on the loan. Keep in mind that this extra disclosure, if needed, could push back your closing date.

                Borrowers should also note that the mailing timeframes could affect their closing dates as well. For example, if you applied for a loan over the phone, the lender would have at least three business days before he would have to mail the good faith estimate, and another three days would go by before the document would be considered received by the consumer. That means if you applied over the phone and everything went perfectly, the earliest closing date would be 11 days after the application.

                Another new rule requires lenders to provide a copy of the appraisal to the home buyer a minimum of three business days before closing so the borrower has a chance to review it. Lenders must also provide a copy of the HUD-1 form, the document that states all your final costs, at least three business days prior to closing. Previously, this was only required one day before closing.

                As you can see, many of these new timeframes and required waiting periods could affect your closing date. That’s why many mortgage lenders are advising home buyers and sellers to plan for at least 30 days for the transaction to close. The complexity of the new regulations also makes it more important than ever to work with a Realtor who will help you consider these new timeframes as you work out the details of your transaction.

While there will undoubtedly be some delays because of the new mortgage rules, make sure to use these new consumer protections to your advantage. Carefully read and consider each disclosure and use them to help you purchase the mortgage that is best suited to your situation.


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