Yesterday I wrote the first of two blogs introducing the New Truth In Lending (TIL) Guideline changes. In this second blog I will go into more detail as to why I feel that these changes will create significant delays in the Loan Closing Process.
First let me recap the four major changes that will go into affect at the end of the month:
- As of July 31 ALL Loan transactions will require that the initial Truth In Lending (TIL) statement be issued within 3 days of the Loan Application, and no Loan Transaction will be allowed to Close before the 7th Business Day after the Borrower has been sent or given the initial TIL. Business Days are defined as all calendar days except Sunday and the Federal Public Holidays
- The new Guidelines will also require that there be an additional 3 day waiting period for a loan to Close, if there is any changes in Fees after the initial TIL is issued, that will cause the APR to change by .125% up or down.
- The new guidelines will affect how Lenders will be allow to collect fees, and when they can collected them. This to will be affected by when the initial TIL is issued and received by the Borrower.
- Early disclosures and subsequent disclosures must contain a clear notice stating "You are not required to complete this agreement merely because you have received these disclosures or signed a loan application."
Changes 1, 3, & 4 four are will most likely only create minor problems in my opinion, but will eliminate the possibility of Closing a loan in fewer than 7 Business Days. You might say that this is no big deal, but just this past week I had to take a loan and Close it within 7 Business Days (I plan on blogging about this). With these new changes I would not have been able to meet that time period. I don't have a lot of situations like this in the course of a year, and would wear out my welcome with my Underwriter if I did, but I would say I have 5-10 loans during the year that I have to rush through like this.
Not being able to order an appraisal (I can not order an appraisal until I have collected the fees for it) until I have a signed TIL will create initial delays, and also on loans that don't necessarily have to be rushed, but do need to be Closed quickly.
Now the one that I think is going to create big headaches, number #2, which "require that there be an additional 3 day waiting period for a loan to Close, if there is any changes in Fees after the initial TIL is issued, that will cause the APR to change by .125% up or down."
On the surface this may not seem like a big deal, that is until you stop and really think about it. All Closings require a final TIL, because the first one was based on that charges that were listed on the Good Faith Estimate. The Good Faith Estimate by virtue of its name is an ESTIMATE, and thus will change as exact figure become known. Not all the charges on the Good Faith Estimate affect the APR, but those that do can some times change significantly if there are changes to the Loan Program, Closing Dates, Payoffs, or other fees.
The Charges that are listed on the Good Faith Estimate that affect the APR are:
- Points – both Origination & Discount
- Per Diem Interest
- Mortgage Insurance
- Attorney fees (does not include title insurance)
- Courier Fees
- Closing, Underwriting, Processing Fees
- Changing the loan amount
- Changing the loan program
- Changing Rate and/or Points:
- Extension fees (up to .500 points charge)
- request to waive escrow (.250 points charge)
- Float to Rate Lock
- Changing the closing date
- Seller paid closing costs increasing or decreasing
Now that you have had a chance to look at this list, just stop and think how many times there are changes to these fees between the time the loan goes into process, and the day it Closes.
If a new TIL has to be signed 3 Business Days prior to the Closing, this means that the HUD-1 will have to be cut 3 Days prior to the Closing. If there are any last minute changes involving the fees that I have listed above, and they produce a .125% change in the APR up or down, new 3 Day Period will begin once again.
I am going to give a couple of example of how this could easily be a problem. I took loan for a Borrower purchasing a 2 Family House last year. and I estimated the Homeowners Insurance would be $1,200 per year. The Borrower waited until the Day before the Closing to get us an Insurance Binder, and the premium was $2,300. If an incident like that was to happen after July 31th. the loan will most like not Close for another 3 Days.
The rushed loan that I closed on this week, the Borrower wanted to use his own Attorney for personal representation. If an Attorney on our list puts all the loan documents together, does the HUD-1, and also does the personal representation the fee is $750. If the Borrower chooses a different Attorney to do the personal representation, an Attorney on our list will put together the Loan Documents, do the HUD-1, and get paid $500. The personal representation Attorney will do the Title Search, and take out the Title Policy. On this rush loan the personal representation Attorney charged the Borrower almost $900. There were other minor changes that along with the increased Attorney Fees would have kicked us over the .125% change in the APR, and guess what the loan would not have Close for another 3 Days.
Some times Closing are delayed for reasons out of our control, and Rate locks expire, which might mean a higher interest rate, or a fee for a Rate Lock extension, which might create a .125% change in the APR.
This blog is already longer than I intended it to be, and I have not even hit upon the additional problems that could accrue if the TIL is not signed in person and has to be mailed. If this happens there will be an additional 3 Days added to the initial 3 Day time period.
I understand the need for transparency, and to eliminate last minute surprises, but these changes are not in my opinion the answer, and they will create more problems than they will solve.
There can be an exception to these rules. A "Waiver of Waiting Period" can be requested which will allow the borrower to shorten or waive both the 7 day or 3 day if there is a bona fide personal FINANCIAL emergency. However, what will constitute a personal FINANCIAL emergency will have significant constraints, and be limited to things like foreclosures and alike.
Like anything new the true impact of these new guideline changes will probably not be known or felt until they are in affect for a month or so. But I am sure we are going to be reading several blogs in the near future about the Closings that have be derailed because of these changes.
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Info about the author:
George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com
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