Consider this: “Those who remain flexible during times of change will not be bent out of shape!” And here comes H.E.R.A., another strong wind of change to our Industry.
The Housing and Economic Recovery Act (HERA) regulations go into effect July 30. This new Federal Law designed to protect the consumer, could cause closing delays for both you (the Realtor) and me (the mortgage broker).
Like most laws, HERA is intended to protect, but the consequences could cause unforeseen challenges….especially as the industry adjusts to the new requirements and changes. The purpose of the new HERA regulation is to prevent deceptive lending practices in home mortgages. HERA requires significant change and could cause delays in closing. Communication and flexibility will be even more critical on transactions after July 30.
HERA’s what you need to know!
1. The appraisal can not be paid for by the borrower or ordered by the lender until 4 business days after the initial Truth in Lending Disclosure (TIL) has been provided to the borrower by the end investor. Why? Well, investors will be looking for documentation to prove that the fees were not collected early due to a $4,000 civil fine per loan.
Keep in mind, the new HERA law is in addition to the new HVCC rule, which also was put in place as a safeguard to protect the consumer as well as the lender. HVCC requires that lenders must now go through an appraisal management company to order appraisals. The appraiser is assigned from a pool of approved appraisers. HVCC also restricts the lender from having direct contact with the appraiser.
2. The borrower must be provided with a copy of his or her appraisal a minimum of 3 business days prior to closing. The appraisal is considered “received” 3 business days after mailing.
3. If the Annual Percentage Rate (APR) changes more than 1/8%, a new Truth in Lending Disclosure must be provided to the borrower. This means, the loan can not close until the 6 business days have passed from the date the lender mailed the corrected TIL to the borrower. The law requires 3 business days for mail and an additional 3 business days for the borrower to review before they can close.
4. There are a wide number of things which could cause the APR to increase and require a new TIL be provided. Some of the more common causes of required re-disclosure and delayed closing time are:
• Change to the sales price
• Change to the loan amount
• Change to the closing date
• Change in the interest rate
• Change to the loan program
• Borrower locks the loan after the initial disclosure and APR changes
• Re-inspection or multiple inspections by appraiser for completion or repairs
Note: HERA is a Federal Law that impacts all mortgage lenders nationwide. You need to allow ample time for closing in sales contracts as a result of this new law.
Unfortunately, the price to protect the borrower could mean delays to the closing date.
Tags: appraisals, apr, closing delays, federal law, HERA, Housing and Economic Recovery Act, HVCC, Judy Jones, Metro Brokers Financial, mortgages, Real Estate, regulations, truth in lending disclosure