Going into effect on July 30, 2009, the Housing Economic Recovery Act (HERA) contains an amendment to the Truth-In-Lending Act (TILA), named the Mortgage Disclosure Improvement Act (MDIA).
What is the purpose of HERA?
The legislation was designed for three main purposes:
- To include extra steps in the home loan process to help prevent deceptive lending practices.
- To outline more direct and clear guidelines and governing structure for the real estate industry.
- To provide more information directly to the homebuyer for their own protection.
Effective as of May 1, 2009, the Home Valuation Code of Conduct (HVCC) has been adopted by Fannie Mae and Freddie Mac.
What is the purpose of HVCC?
This legislation is intended to reinforce the precision and autonomy in the appraisal process. Under HVCC, appraisers are protected from outside pressures in order to provide better and more accurate appraisals. Additionally through HVCC, it is required that homebuyers receive enough time to thoroughly review information in their appraisal by providing borrowers a copy of their appraisal report no less than three days prior to the closing of their home loan transaction.
4 Changes to Expect
#1 Required Waiting Period Before Closing Date
A closing date traditionally has been set by the homebuyer and seller. Under the new legislation, a closing date still can be included in purchase contracts; however, a home purchase cannot close any sooner than seven business days after thelender has issued initial mortgage disclosures to the borrower which must be delivered or placed in the mail no later than three business days after an application is received. If the required disclosures are mailed, they are considered officially received three business days after they are mailed. In cases when disclosures are sent via overnight mail, they are not documented as “received” until the following business day; it is at that time fees may be collected.
#2 Lenders Cannot Collect Upfront Fees
In the past, lenders have been able to collect upfront fees once an application has been submitted. With the new guidelines, fees may not be collected by the lender until the homebuyer has received the initial loan disclosures. The credit report fee is the only exception to this rule; it may be collected at the time of application.
#3 Additional Waiting Period Required if APR Changes 1/8 Point
Re-disclosure is required if the APR, at the time of consummation, increases from the APR disclosed earlier by more than: 1?8 of 1 percentage point in a regular transaction; or 1?4 of 1 percentage point in an irregular transaction (ie. ARM loan). This point change will trigger the three business day waiting period. If a change in terms does not make the APR out of tolerance, then you must re-disclose all of the changed terms but this does not trigger the three business day waiting period prior to consummation. The APR is subject to a number of influences including: a change in the loan amount, a change in the product, an unlocked rate, a rate re-lock, a change in the closing date or changes in fees. Because of these various determining factors, it is vital that the estimated fees are documented accurately.
#4 Copy of Appraisal Must be Provided 3 Days Before Closing
Under the new legislation, a copy of the appraisal must be provided to the homebuyer a minimum of three business days before closing. The homebuyer may relinquish the requirement to receive the appraisal within three business days.