In-Depth information on the Mortgage Disclosure Improvement Act of 2008 - MDIA
This is a lot of reading, but it's all important information!!
Well, the government's done it again! They're trying to streamline & improve mortgage disclosure for borrower's and in the process they've made life a lot more difficult for everyone (Think HVCC).
The federal government has recently issued final guidelines & enacted MDIA which regulates how & when mortgage brokers & lender disclose the APR on a loan. In theory, it is a good thing to require brokers to properly and accurately disclose, however as usual, they've taken this way too far.
The biggest impact the general real estate industry will realize from MDIA is below:
No one (creditor, broker or third party) can collect a fee for anything associated with the loan application and transaction other than for the credit report until after the borrower receives the initial TIL disclosures.
This means that the broker can not collect the appraisal fee until MDIA guidelines have been met.
Post-dated checks are not permitted.
Appraiser's will typically not perform the appraisal until the fee has been paid, so this will add significant time delays to the transaction.
The regulation states that fees may be collected once the borrowers have received the initial TIL. Many lenders are requiring that they mail out the disclosure - MDIA assumes borrower receipt on the third business day (not counting the mail date).
So basically, best case scenario, you can order the appraisal on the 5th day after taking the application.
If the APR has increased more than .125% points from the most recently issued TIL, a new TIL must be issued and the borrowers must receive it at least 3 business days before signing closing documents.
- Including mail time this adds seven days to the transaction
Borrowers cannot sign closing documents until the later of:
- The 7th businessday after the initial TIL was provided <OR>
- The 3rd business day after the borrower received the most recent/the last amended TIL.
Business days are the same as for rescission: Monday-Saturday except for federal public holidays
- In the instance of the initial TIL, a business day is Monday-Friday, and Saturday is not included
Several other notes:
- Without proof of other means of receipt (signed and dated TIL, or paper acknowledgment) it is assumed the TIL is received 3 business days after mailing.
- Loans submitted to underwriting that are not documented or the documentation indicates that fees were collected prior to borrower receipt of the TIL will be rejected by the lender.
None of the waiting periods may be waived by the borrower.
Summary of the changes which take effect July 30, 2009:
- New regulations are effective with loan application dates on or after 7/30/09.
- The lender must issue initial TILs on purchase, refinance and equity loans on primary residences and second/vacation homes.
- The clender, mortgage broker, or any other party to the transaction may not collect any fee other than the credit report fee until the fourth business day (rescission definition) after the initial TIL was issued, or until after receipt of the initial TIL has been documented, if received earlier.
- Post-dated checks may not be used.
- The borrowers may not close until at least the 7th business day after the initial TIL is issued, or the 6th business day after an updated TIL is issued when the APR changes more than .125% fixed or .25% ARM, whichever is later (6 days assumes 3 days from mailing to receipt, and 3 days from receipt to signing).
- A TIL reissued solely because of an increase in a finance charge, a change in loan program, etc., does not impose the new three-day waiting period before closing PROVIDED the new APR is not more than .125% points greater than the most recently disclosed APR.
Frequently asked questions:
How do the new requirements impact applications taken prior to the effective date? -As long as the initial application is dated before July 30, there will be no impact.
Do the timing requirements for the issuance of the initial disclosures and re-disclosure, and fee collection apply to investment property?-No. These requirements only apply to primary residence and second home transactions.
The final TIL must be received 3 business days prior to closing. Is that 3 full days?-You must allow 3 business days for mailing, then the homebuyers have 3 business day review period required to determine if they are comfortable with their loan choice. Closing can occur on the 3rd business day AFTER receipt PROVIDED this is also at least 4 business days after the borrower received the initial TIL (if it is mailed, we can assume it was received on the 3rd business day after it was mailed).
Does the broker have to get the Lender TIL to the borrower within 3 days of application? -No. The lender is responsible for sending out the TIL to conform with MDIA. The broker must disclose the GFE and TIL within 3 days of application to meet RESPA requirements.
Can credit report fees be collected at time of pre-qualified applications?-Yes. The credit report is the only fee that can be collected before the applicant receives the initial TIL.
When a phone application is taken, can a post dated check, credit card or other payment information be collected and held until upfront fee payment is collected?-No. Fees or payment information cannot be collected prior to the allowed fee collection date, which is a minimum of 4 business days after the initial disclosures are mailed (if mailed) or before the applicant receives the initial TIL disclosure if it is not mailed.
If a broker orders an appraisal prior to collecting fees---can this appraisal order continue, appraisal delivered and used to evaluate the loan?-Yes, if the broker pays for the appraisal upfront and does so at their own risk. If the borrower decides not to proceed with the transaction once they get the TIL, they can be under no obligation to reimburse the broker for the cost of the appraisal.
If two borrowers are applying for a loan, and only one person is present at the application, can upfront fees be collected at the time that the one borrower is present?-YES. If there is more than one consumer, the initial disclosures may be made to any consumer who is primarily liable on the obligation.
Does this regulation only impact purchase transactions, or are refinances subject to the same guidelines?-Both purchases and refinances are impacted.
Is the 3 Day Right to Cancel still in effect?-Yes, the right of recision is still in effect for refinance transactions.
Can Lender accept an appraisal that was performed for another lender? Yes, lenders can accept a transferred appraisal and loan as long as no other fees are collected or imposed until the borrower receives the new lenders TIL disclosure. File will need to be adequately documented that the initial TILA process was complied with original lender.
What happens if it is apparent to lender that broker collected fees prior to borrower receiving a copy of the Initial TIL?-If this is apparent, the loan will be rejected and not able to close with this Lender. Lenders cannot close a loan that is not in compliance with this regulation as well as all other federal, state and local laws and regulations.
Please call me if you are in the market for a home loan. I can get it done!!
I specialize in working with first-time homebuyers across the state of Florida. I know FHA, VA, USDA Rural Housing loans inside & out and would love to answer any questions you might have.
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