On July 30, 2009 the rules changed- are you ready?

The MDIA is effective for mortgage loan applications taken 07/30/09 and thereafter and places many additional restrictions on how we lenders will have to comply with disclosing loan terms to our borrowers. The effort is laudable- to give customers the information they need to properly shop for a mortgage, when they need it; however it represents an awesome example of how badly government can screw something up.

My vantage point for this fuster cluck is that of a Mortgage Banker. I get to see the Bank and Broker side of this and have seen the many conflicting memos indicating how various lenders are making sure to comply. If you think this act will not impact you, think again.

The document that's causing all this grief is the Truth in Lending disclosure or TIL. Heretofore the TIL has always been one of those many disclosures no consumer ever really pays attention to. It attempts to convert the interest rate and fees associated with getting a mortgage into one, easy to read Annual Percentage Rate or APR. Again, great intention- shitty delivery. The most memorable part of this form is that is DOES NOT have your actual interest rate (what did you expect from the government- and now they want to manage our health care?). Truth is (pun intended) the form does disclose very pertinent information about pre-payment penalties, insurance requirements and late charges, as well as interest costs over the life of the loan but in my many years of working with it I've actually had customers call it the "Not in Truth in Lending" form.

So now we are being challenged to provide an accurate TIL within very strict timelines or we simply cannot proceed with the loan. As mentioned earlier, what's worse is some lenders are interpreting the rules differently. For the most part what I'm seeing is:

• All are not allowing the collection of any upfront fees (except for credit reports) until three business days have elapsed from your having sent the TIL to your customer, but many have conflicting definitions of when the disclosure is actually provided. Look for this to slow down appraisals even more.
• All are not allowing any loan to actually close within 7 days the original disclosure, but many are defining that disclosure differently too.
• Some are requiring additional precise wording be added to the TIL (though all of them should be).
• Some are requiring the borrower sign additional disclosures saying all this is actually happening when it should (and you wonder why we kill so many trees in this business).

I think you get the drift by now. Different rules in different places so be prepared to hear conflicting information depending on who you ask.

The real big deal with this act is that it will not allow us to close a loan until our borrower has had a correct (to within .125% in interest) TIL for three days. This means any change that would trigger a new TIL will delay your closing at least 3 days. If the new TIL must be mailed it is considered to be received by the borrower 3 days later so that would delay your closing 6 days. Some lenders say it's only if the APR goes up by .125% but if your read the Act it applies for any change, up or down. See where I'm going with this?

OK- so you want to know some specific instances that could make the TIL wrong at the last minute. Considering that $125 is enough to throw a $100,000 loan out of compliance it doesn't take much. Regulation Z tells us what is considered a finance charge and some of the easiest to trip over are:

• fees charged by the title company or closing agent when required by the lender
• rate lock extension fees
• prepaid interest that changes daily (although typically it should take about 8 days before you get into trouble)
• up front private mortgage insurance premiums (how many lenders do you know that can accurately calculate the guarantee fee on a USDA Rural Development loan? Hint- there's not many.)

By now I hope you've realized how vital it will be to use a knowledgeable lender if you want to avoid unnecessary delays. I know this info is boring; it's the nature of our business folks. Paying attention to this boring stuff is what you need your lender for. The devil is hiding in the details more than ever before so make sure your lender is on the ball or you may find yourself behind the eight ball.

Gerry Suarez, Jr.

Your FHA Loan Pro!