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Effective today, July 30th 2009, the following changes will affect all transactions in the mortgage industry both Brokers and Bankers. The changes will affect how to disclose the Truth and Lending and the Regulation Z, the result of the “The Housing and Economic Recovery Act of 2008” (HERA) changes.

Now let me take a moment to say that our numbers are always very accurate so this won't change very much for our team unless a 3rd party charge to APR comes up last minute. These fees would be additional title items from some of the REO sales that we have all seen lately.

However, the people that haven't been disclosing accurately all along (or the bait and switchers) really will need to adjust their behavior. You may know these as originators that always have to cover fees or explain why the good faith estimates don’t match up with the final HUD. The problem is because of the increased time to create and close a loan the “bait and switchers” will all but have your borrower locked into closing at the higher APR.

This re-disclosure rather than punishing the rouge lenders, will just punish the borrowers, sellers and agents because there will be a 3 day delay for the borrower prior to closing! The ugly truth is 3 days to re-disclose is still too short of a time frame to get a new loan done. The cost may be in that sellers may not be too willing or unable to extend if they are going to buy another house and have a simultaneous closing.

The “SOLUTION” to the following new law is to work with a professional you trust and one that has and will continue to disclose all fees truthfully instead of trying to “POLISH” up the good faith to look cheaper initially.

For listing agents it will become CRITICALLY important to get correct title fees if the seller picks the title company. For selling agents that pick the title company, getting correct fees to the buyer’s lender is equally important.

The following is a is a detailed synopsis of the new law that you can review with your clients and partners.

Housing & Economic Recovery Act of 2008 (HERA)

HERA was developed to protect the mortgage consumer. The Act contains provisions that revise the Truth and Lending Act and will apply to all loan applications received on or after July 30, 2009.

What is the HERA Mortgage Disclosure Improvement Act?

Five changes from HERA Disclosures:

o Saturdays count as a business day

o Upfront fees cannot be charged until the borrower receives the initial TIL from the Lender. Only exception is a credit report fee.

o Initial TIL now required on all purchases and refinances of primary residences and second homes. The loan cannot close (i.e. document signing) until seven (7) business days after the initial TIL disclosure has been mailed.

o Initial TIL must be provided at least seven business days before the close/sign date.

o An increase in APR by more than .125% requires re-disclosure of the TIL at least 3 business days before closing. If mailed, the TIL is considered “received” 3 business days after mailing. The loan cannot close until three (3) business days after re-disclosure TIL is received (when applicable).

Definition of Disclosure Delivery

If the disclosure are delivered via regular mail, the disclosures are considered received by the borrower three (3) business days after they are mailed. When disclosures are delivered electronically, consistent with the E-Sign Act, the creditor may rely on evidence of actual delivery to determine when the three-business (3) day period begins. Accordingly, lenders are adapting disclosure processing to support electronic communication of the Truth in Lending. Electronic delivery of the disclosures allow for a more streamline process and provides an opportunity for better customer service.

Reason for HERA Disclosures

A more transparent, level and fair regulation of the real estate industry

Additional controls to prevent deceptive lending practices

Protection against abusive lending practices for borrowers

Consistent lending practices among all lenders

Borrowers are more informed and more confident about the mortgage process

HERA Revision #1

Saturday is now counted as a business day for disclosure timing

HERA Revision #2

No upfront fees can be charged prior to the consumer’s receipt of the initial Truth in Lending disclosure (TIL) from the Lender. Lenders will no longer be able to charge large commitment fees that intimidated the borrowers into staying with that lender.

Credit report fee is the only exception to the regulation

If disclosures are mailed, the consumer is considered to have received the TIL 3 business days after mailing.

Appraisal cannot be requested until the consumer receives the initial TIL from the Lender (applicable to all loans, conventional AND government). This will stall all appraisal orders for a minimum 4 days from initial consultation.

RESULT

HERA Changes - #3

Initial Truth In Lending (TIL) Disclosure

The initial TIL disclosure has been amended to require specific language to notify the consumer that they are not required to complete the loan agreement merely because they have received the disclosure or signed a loan.

Required for all primary and second home transactions

RESULTS

HERA Changes - #4

Early disclosures need to be provided no later than 3 business days after receipt of application as well as be provided at least 7 business days before close/sign

RESULTS

HERA Changes - #5

An increase of more than .125% in the APR from the initial TIL disclosure requires the TIL disclosure to be revised and reissued to the borrower

Borrowers must have a 3 business day review period prior to close/sign

It is presumed that borrowers will receive the disclosures 3 business days after mailing

HERA Changes - #5

RESULTS

HERA HVCC Guidelines

Per HVCC, the borrower must be provided a copy of the appraisal*

Borrowers must have a 3 business day review period prior to close/sign

It is presumed that borrowers will receive a copy of the appraisal 3 business days after mailing

Borrowers have the option of waiving their right to review the appraisal, thereby eliminating this wait period

*The Home Valuation Code of Conduct technically only applies to conforming loans, but many investors will apply it to all conventional loans, and in the future may apply it to other types of loans as well.