HERA: Housing and Economic Recovery Act Effective July 30, 2009
HERA amends the Truth in Lending Act (TILA), and is intended to improve the disclosures consumers receive in connection with closed-end mortgages and home-equity lines of credit (HELOC’s). It has a number of provisions including the Mortgage Disclosure Improvement Act, which changes the TILA requirements surrounding early and final disclosures to homebuyers and addresses the timing of when fees can be charged.
Exactly how will these two affect the borrower?
If the homebuyer is financing the property, these new guidelines will impact and could even dictate the closing date. In the past, homebuyers and sellers would agree on a closing date, and then realtors, broker’s lenders and all associated professionals – would work as best they could toward meeting that date. In the new environment, purchase contracts can still be written with a specific closing date in mind, but all parties need to take into account that there are many elements of the new regulations that can delay a closing date.
If a mortgage is involved the earliest any home purchase transaction can close is 7 business days after the homebuyer is issued his or her initial mortgage disclosures from the lender. However at each step of the process there are potential triggers that can cause delay.
Here are some of the potential events that could trigger a delay:
An increase of more than .125% in the Annual Percentage Rate (APR) from the initial Truth in Lending disclosure (TIL) requires the TIL disclosure to be revised and reissued to the homebuyer. The homebuyer must receive a revised TIL disclosure at least 3 business days before closing, factors that could cause an increase include changing from one mortgage program to another, an increase in your interest rate caused for example by a rate change between the time application and locking of the loan. Keep in mind that your final APR cannot be set until the loan is locked. It is advisable to have the loan locked a minimum of 10 days before closing and to cover contingencies the lock should extend at least 10 days beyond the scheduled closing date.
In perfect transactions the loan process can be accomplished in 30 days. This is not a great difference from what was possible prior to the new regulations went into effect but that time estimate assumes that everything goes according to plan. Unfortunately in the mortgage process most of the time at least one issue will pop up. In the past the various parties involved would work to iron out any issues while the process continued in other areas keeping the original closing date. Now each time there is a triggering event there can be delays from 3 to 7 days. So to be completely safe I would recommend that your Realtor should include language in any purchase contract that allows for the new environment. This is doubly so if the transaction includes a sale of a property in order to purchase a new one.
Read the Federal Reserve Press Release Here: http://www.federalreserve.gov/newsevents/press/bcreg/20090723a.htm
Tags: APR, Federal Reserve Board, HERA, Housing and Economic Recovery Act, Mortgage, Mortgage information, Realtor, Settlement Statement, TIL, TILA, Truth In Lending
