End of the 30 day escrow

By
Real Estate Agent with Bruce Forge Real Estate 00333941

Maybe you've heard - the government is coming to help protect you.

For example, on July 30 a new disclosure act became law.  In order to protect you the borrowing, home buying, public, your selected lender must provide you with a Truth-in-Lending (TILA) statement detailing the costs you should expect to face when financing real estate.  You have three business days to review this material.  Add to that an estimated three day mail transit period and you will need to wait SEVEN days before your lender is allowed to collect any fees from you (except a nominal credit report fee) and that includes taking advance dated items such as post dated checks, credit card authorization, etc.

Then, if the fees increase by $100 or more, or if the Annual Percentage Rate (APR) calculation increases by 1/8th% (0.125%), the law mandates a new disclosure must be issued and another 7 days waited before your lender can draw your closing documents.

If your interest rate is floating during this period, and if that floating rate rises above the estimated rate on the initial TILA disclosure, said lender must make another disclosure with another seven day period.

And, if you are doing a refinance transaction, these periodic 7 days waits are in addition to your final 3 day rescission period that has been the law for several years.

So, you start your loan application on August 1, 2009.  Assuming your lender mails the forms the next day, they are forbidden to order the appraisal (a cost) before August 8th.  The initial interest rate estimate comes to you at 5.5% APR.  You choose to float the rate hoping it will come down before you need to commit to the loan.  For the first two weeks, it does float down to 5.25%.  No problem.  No new disclosure. 

Then on August 15th, rates shoot up to 5.63%, just over the .125% limit.  A new 7 day disclosure period starts, even though you are still floating the rate.  August 25th, rates are now 5.875%.  You get a new disclosure and another 7 days.

Finally, it is time to close the financing.  You lock on August 31st at 5.75% by paying an additional fee to the lender of $700, called discount points.  Lucky you.  Good rate, but too much money spent, so another 7 day disclosure period.  Finally, on September 10th your lender requests a final estimated HUD from the closing agent.  Here and there some numbers are a bit off to the total of $250.00  Guess what?  That's rignt, another 7 day disclosure period.

See why getting a 30 day escrow is now just a footnote in history?  Bet you are glad the government stepped in to help you, right?

Yes, getting accurate fee disclosure is important.  Note that lower fees and lower APR's don't cause another 7 day process.  Gee, I wonder if service providers, lenders, closing agents, title companies and so on will just estimate a few bucks higher than they really need just to avoid delays?  Not a lot, mind you.  $100 or so here.  Another $100 or so there.  Pretty soon it is serious change.  Such protective costs have a way of becoming firm and due as the transaction proceeds.

So, the net effect is that buyers and borrowers generally will experience higher overall costs, not lower.

Comments (4)

Ralph Gorgoglione
Maui Life Homes / Metro Life Homes - Kihei, HI
Hawaii and California Real Estate (310) 497-9407

Great.

Wonderful.

What else are they going to throw at us??

Aug 17, 2009 01:54 PM
Jeffery Griffin
Jeff Griffin LLC - Wailuku, HI
Broker Owner

well some good and some bad Aloha ha ha

Aug 17, 2009 02:05 PM
TIM MONCRIEF
Tim Monciref - Austin, TX
Over 2,000 homes sold…..

It is a matter of being more time conscious than ever before.  I will have a 3 week closing next week; so quick closings are still feasible, just more of a challenge.

Aug 17, 2009 03:38 PM
Bruce Forge
Bruce Forge Real Estate - Santa Ana, CA

The stated goal for all such legislation is to protect the public by providing accurate and timely information.  That is a worthy objective.  But the last loan document package ran to 114 pages.  Who reads all that stuff?  Disclosure after CYA disclosure, after CYA disclosure.  It is intimidating, overwhelming, and self defeating.  Not even my clients who are attorneys read all those pages.  What's the point, after all. 

The new TILA disclosure process uses a generally confusing form to disclose a virtually meaningless number - the APR.  If one pretends that it is somehow important often enough, one comes to believe in the number.  But, take a look at the formula.  Even the APR calculator program from the Office of the Comptroller of the Currency at http://www.occ.treas.gov/aprwin.htm makes the following disclaimer - "Although great care has been taken in the preparation of this APRWIN program, the OCC makes no warranty of complete accuracy. Further, the OCC does not recommend this program over other methods to calculate annual percentage rate."

Where does that leave the average, or even an above average, borrower?

Aug 18, 2009 02:19 PM