New Government Lending Regulations – What They Mean to You

It’s no surprise lending and real estate regulations have changed as a result of the credit crisis. We have already seen tightened lending practices that resulted from rising mortgage delinquencies, and now our legislators in Washington have enacted new laws changing the way lenders do business today.

If you are a home buyer or real estate agent, there are two significant pieces of legislation impacting lending that should be considered, especially when determining closing dates for purchase transactions.

Home Valuation Code of Conduct – Now all conventional home buyer loan applications sold to Fannie Mae or Freddie Mac must be compliant to new important changes. In an effort to help safeguard and reinforce appraiser independence and ensure the soundness of appraisals, lenders must be in full compliance with the HVCC. One of the main changes is the manner in which the appraiser is selected and engaged. Under these new regulations, loan originators are not allowed to have any communications with an appraiser to have impact on valuation, and home buyers have the right to “promptly” receive a copy of the appraisal.

The code is intended to reinforce the independence of the appraiser. Lenders no longer have the ability to help facilitate the appraisal process on conventional loans. Because our company VITEK Mortgage Group is not satisfied with the poor performance and appraisal reports we’ve received using the recommended national and regional Appraisal Management Companies, we are about to unveil our solution to better serve our customers with quality and timely appraisals. Expect to receive more in future blogs about our solution. In the meantime, it is important to note that these new regulations DO NOT affect government loan programs such as FHA, VA, CalVET, reverse mortgage, and USDA loan programs. They do affect CalPERS loans and some jumbo home loans.

Housing and Economic Recovery Act – Real estate agents, buyers, and sellers beware. The recently enacted Housing and Economic Recovery Act (HERA) amends and impacts several aspects of obtaining a mortgage, including the disclosures required for borrowers and the timing of their delivery. When applying for a loan, a borrower is provided a Truth in Lending (TIL) statement that details the total expected costs that could be incurred over the life of the loan. Should anything change in the loan application causing the APR to increase more than 0.125%, a new TIL must be reissued to the borrower.

The new rules may adversely affect the minimum time required to close, especially if changes are made to a loan application. When changes are made to the loan application that cause the APR (Annual Percentage Rate) to increase more than 0.125%, re-disclosures are required to be sent to the applicant. There is now a minimum of three business days wait from the time of any re-disclosure to when the borrower can sign their final loan documents which may delay the subsequent closing date. Also, for rush situations now the earliest a loan can close is 7 business days after the initial disclosure is issued! Examples of things that can cause the APR to increase are loan product changes, loan amount changes, interest rate changes, good faith estimate of loan cost changes, and even changes of the planned closing date!

In addition, lenders may not accept any additional fees from a homebuyer until the fourth business day after the initial disclosures have been provided to or mailed to a borrower, other than paying for a credit report. This has the potential to delay several aspects of the application process, especially the appraisal ordering process.

Now more than ever, for peace of mind it is important to work with a lender like VITEK Mortgage Group that understands the new lending rules and acts appropriately to avoid unnecessary delays in your purchase transactions. For starters, we recommend you work with home purchase contracts that have sufficient time frames to account for possible delays if the terms of the loan application are not certain and the interest rate lock is still undone. Also make sure your loan terms are locked at least seven days prior to closing to avoid any unnecessary and time delaying re-disclosure requirements. The new HERA rules do not apply to home refinance loans.

Philip Duncan
Executive Vice President

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