Hera’s What You Need to Know About H.E.R.A.

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tornadoConsider 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.

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14 Responses to “Hera’s What You Need to Know About H.E.R.A.”

  1. Lloyd Carver, Loan Officer Says:

    Keep in mind that if your borrower executes Metro Brokers Financial’s one-time free float down option on their interest rate, we do not have to redisclose. It is only when the APR increases more than 1/8th, that you have to redisclose.

  2. Phyllis Rodkin Says:

    This is when you need an excellent loan officer like Lloyd Carver that keeps up with new changes and is ready to handle obstacles that may come our way.

    • Lloyd Carver, Loan Officer Says:

      Thnks for the nice comment Phyllis, but that goes for any Metro Brokers Financial loan officer as well. Communication between all parties of the purchase transaction will now become even more important given HERA. This is just another reason why doing business with Metro Brokers Financial, Metro Title Trust and Metro Brokers Insurance on each transaction is warranted.

  3. ann bone Says:

    Excellent point, Lloyd.

    Agents, plan ahead! Allow 45+ days for closing once you have a binding agreement. Put “45 days from Binding Agreement Date” in your closing date field for your offers. Better yet, put “see special stips” and clafity in your Special Stips that, “Due to Housing & Economic Recover Act of 2009 requirements, closing shall occur 45 days from Binding Agreement Date.” This will put the seller on notice that the buyer is closing as soon as possible. Some lenders are even suggesting a 60 day closing timeframe.

    Better to tell the buyer (and the seller) the truth than to mislead them to expect quicker closings and have a lot of explaining (and per diem charges) to do later.

    • Judy Jones Says:

      Ann is so right. Buyers need to be advised that the mortgage lender is not a party to the sales contract and if the buyer needs a mortgage to close, they must consider the current turn times in the mortage market place when negotiating a sales contract.

      If a buyer elects to enter into a contract with a 30 days closing date and a per diem if that date is missed, they must understand that the terms of this contract do not bind the lender or change the reality of current turn times and the added time now required due to the new Federal Laws.

      The buyer must be willing to pay the per diem for a closing that can to happen in 30 days as a normal part of what they are willing to do to buy this specific home.

  4. Sandra Rodrick Says:

    The original Hera was the Greek goddess known as the Queen of Heaven. She was a powerful queen in her own right before she married the Olympian king, Zeus and exhibited a great capacity for nurturing the world. Still, as kind and loving as she was, Hera had a mean, vindictive side. So, waht has this got to do with H.E.R.A. guidelines that go into effect today? With the HERA guides, agents need to remember to nurture their clients/cases and keep everything flowing on time. Time management and being aware of the situation will keep any delays to a minimum and keep the clients happy. Staying on top of the situation is the best prevention to keep the ugly side of a transaction from showing up at all. The goddess Hera and the new lending changes are reminders for us all that there is a light and dark side to everything and those gradiations are attached to the joy or dejection a situation, such as a closing, brings.

    • Scott Baker Says:

      I love the allusions to Greek mythology. One of the more witty anologies I’vee seen.

  5. Gerard Dickson Says:

    If clear and accurate communication wasn’t as important before, now more than ever, will it be essential for Realtor, loan officer, buyer, and seller to work together closely together upfront making sure information received doesn’t change unless absolutely necessary. In my former corporate Telecom life, if you put garbage in, you received garbage out (GIGO). Let’s get it right the first time with the one stop shop here at Metrobrokers.

  6. shelley taylor Says:

    under the comments of Judy Jones. How do a Per Diem applies to a Closing. I know how it worked when I was employed, I have no idea how it works for a Closing.

    • Judy Jones Says:

      Shelley,
      The Per Diem amount I referred to is a daily charge that some sellers want the buyer to pay them for each day past the closing date agreed to in the sales contract.

      Some sellers are not willing to accept a sales contract with a closing date past 30 days even though the buyer must obtain mortgage financing and in today’s market a 30 day closing would be difficult.

      The buyer might be very willing to pay the per diem as part of requirements to buy a specific home. The per diem generally ranges from $100 to $250 per day.

      This may seem high initially, until you consider that some of the homes are selling for as much as 20%, 30%, 40% or even 50% of what the current owner paid for the home.

      Compared to a $50,000 savings a $100 per diem is no big deal in the big picture.

  7. Pat Viohl Says:

    Ann: Thanks for the suggested wording for a special stip on this. I got the email and attachment from Metrobrokers just as I arrived in Savannah for the first segment of GRI and Bobbie Conner and I were two of the first folks to know about it. It was several days later that the info document was distributed to the other attendees – so thanks Metrobrokers for helping us appear to be the “women in the know” on this one!

  8. Watch Out for Loan Delays with TB&W Suspension « Metro Brokers Blog Says:

    […] with TB&W Suspension By Judy Jones It’s been an interesting week. On July 30, the Housing and Recovery Act went into effect. Now, the nation’s 12th largest mortgage investor, Taylor, Bean and Whitaker […]

  9. appraisal management Says:

    If a buyer elects to enter into a contract with a 30 days closing date and a per diem if that date is missed, they must understand that the terms of this contract do not bind the lender or change the reality of current turn times and the added time now required due to the new Federal Laws.

    • Judy Jones Says:

      This is an excellent point. Unfortunately, during the negotiation of a sales contract, many buyers and sellers do not take into consideration the required turn times involved in obtaining the mortgage. Buyers and Sellers should begin their negotiation process with complete information on realistic turn times of today’s mortgage market.

      Many Buyers and Sellers are not fully aware of all the Federal Regulations that have been put in place to intentionally slow the mortgage process. These Regulations were created to prevent buyers from being rushed into mortgages they do not fully understand and thus prevent another “mortgage meltdown”.

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