Green Mortgage Northwest

Banks are still dealing with fallout from the subprime mortgage crisis, and this post covers a few of the most recent changes stemming from that. Many of them dictate a transaction’s closing date, so make sure you know how the new laws work. Below is a synopsis of the recent changes.

First up is the Home Valuation Code of Conduct (HVCC), which was recently adopted by Fannie Mae and Freddie Mac. When you hear HVCC, think “appraisals.” Effective May 1, 2009, appraisers are “shielded” from the influence of 3rd parties who have an interest in the transaction.

The new process for ordering appraisals involves an independent third party who acts as a broker between the lender and the appraiser. Also, the borrower must receive the appraisal at least 3 days prior to the loan closing (unless they sign a waiver, which I see happening frequently if time is crunched).

Another recent act is the Housing and Economic Recovery Act (HERA), which, effective July 30th, 2009, changes requirements about when disclosures and initial fees can be charged to the buyer.

A summary of these two acts:

1. The earliest any transaction can close is 7 business days after initial disclosures are sent to the buyer.
2. Upfront fees cannot be collected until 3 days after initial disclosures are issued. This means appraisals will have to wait at least 3 days after the initial loan application.
3. The borrower must get a copy of their appraisal at least 3 days prior to close.
4. If the Annual Percentage Rate (APR) increases more than .125% compared to the initial Truth in Lending (TIL) disclosure, the borrower will need to sign a revised form at least 3 days before closing…and a TIL disclosure isn’t considered “received” until 3 days after mailing, so it’s really a week!

Any of the following can impact the APR, so watch out for them:

• Unlocked rate
• Change in loan amount
• Closing date change
• Change in the loan product
• Changes to fees

The biggest thing to take away? 10 day closes are NOT going to happen any more – negotiate for at least a 30 day close, and probably closer to 45 days. The positive side to all this is that it is getting rid of the lending practices and shenanigans that got us here in the first place, which I definitely see as a good thing.