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New Mortgage Laws:  7 Critical Things Realtors Need To Understand To Protect their Clients, their Business, and their Income.

There are a number of new laws in place is to protect consumers who apply for a mortgage.  One of the most important changes involves mortgage disclosures and new mandatory waiting periods which recently became federal law.  By law, the consumer is now given “time” to review all disclosures. This is intended to provide an extra layer of protection for consumers by imposing a mandatory waiting period before a loan can close.  Here is a summary of what you need to know:

1. UPFRONT DISCLOSURES:  Borrowers must wait at least 7 business days after the Truth-In-Lending disclosure is issued until they can close on their mortgage loan.  Add 3 days if the disclosures are provided via mail.
2. REVISED DISCLOSURES:  If there are any changes to the terms of the transaction or the loan, new disclosures must be issued and the borrower must wait an additional 3 days until they can close on their mortgage loan.  Add another 3 additional days if the new disclosures are provided via mail.
3. BROKERED LOANS:  If the loan officer works for the same company that will be funding the loan, borrowers do not need to be concerned about any additional waiting periods.  If the loan officer is “brokering” the loan to another company, then additional waiting may occur.  When a loan is being brokered, the date of disclosures is based on the date that the funding lender issues disclosures rather than when the originating loan officer issues them.   Most banks and direct mortgage lenders fund the vast majority of the loans that they originate, and as such these additional waiting periods don’t typically apply.  In an effort to always provide out customers with the best possible mortgage options, even banks will occasionally “broker” certain niche loan programs.  Examples of these programs include, but are not limited to, some “State Bond” loan programs for first time home buyers, reverse mortgages and construction loans.
4. APPRAISAL DISCLOSURE:  In addition to the mortgage disclosure requirements, the lender must also deliver a copy of the appraisal to the borrower at least 3 business days before closing.  Add 3 days if the appraisal is provided via mail.
5. ELECTRONIC DELIVERY CONSENT:  Borrowers can consent to receiving documents via email and shave 3 days off the waiting period.  Lenders will require a signed “Electronic Delivery Consent” form on file to deliver documents via email.

Top 7 Things You Need To Understand To Protect Your Clients And Yourself:

1. CLOSING DATE:  I know this is a tough one, but when negotiating the date of closing, make sure it’s flexible and there are no penalties for not closing on the specified date.  The waiting periods are “federal law” and preclude the terms in the written contact.
2. DOWN PAYMENT:  Last minute down payment changes will delay your closings.  
3. RATE LOCK:  “Floating the interest rate” until the last minute could delay your closings.  Encourage your clients to lock in at least 7 to 10 days before the projected close date.  In addition, last minute changes could also trigger the need for lock extensions, which could increase the loan costs and trigger even more disclosure waiting periods.
4. SHOPPING:  Switching lenders at the last minute will delay closings.  The disclosure process starts over again with another lender.
5. WAIVERS:  There are no waivers to the waiting period—unless it’s a hardship with tens of thousands of dollars at stake because the law is written as such that a ‘waiver” will be virtually impossible to obtain.  
6. TRANSACTIONAL CHANGES:  Notify your loan officer if anything…and I mean ANYTHING changes on the purchase agreement.  This could require a re-disclosure and another waiting period, and as such could delay the closing.  See examples below.
7. THIRD PARTY FEES:  Since the lender is responsible for estimating and disclosing third party fees (appraisal, credit report, closing escrow company), there may be last minute changes that are out of their control.

The bottom line:  The days of negotiating the deal at the last minute ARE OVER—unless all parties involved (buyers, sellers, etc.) are prepared to delay the closing date.

CHANGES THAT MAY TRIGGER RE-DISCLOSURE REQUIREMENTS:

Transactional Changes – Examples:

            Sales Price

            Loan Amount

            Down Payment

            Closing Date

            Seller paid closing costs (sales concessions)

            Loan Program (Conventional, FHA, VA RD, IHFA)

            Type of Property (Single Family, 2-4 Units, Condo, Manufactured homes, etc)

            Type of Occupancy (primary residence, second home, investment property)

Lender Changes – Examples:

            Interest Rate (floating rate vs. locked rate)

            Origination Fee (finalized when you lock)

            Discount Points (finalized when you lock)

            Lender Fees (Processing, Underwriting, Doc Handling, Courier Fees, etc)

Third Party Changes – Examples:

            Flood Certification Fees

            Mortgage Insurance

            Closing Agent’s Misc Fees (Doc Retrieval Fees, Courier Fees, Mailing Fees, etc.

            Escrow Company’s settlement closing fee

(The above examples are not all inclusive of every item that might trigger re-disclosure requirements.)

As you can see we are living in an even crazier mortgage world. The keys to success: work with a knowledgeable fulltime mortgage professional, start the loan process early, don’t try to close a transaction faster than the new laws will allow (a reasonable amount of time is 30 days from date of fully excepted contract), and keep a consistent flow of communication throughout the process!

Home Loan and Mortgage Refinance News from Prime Equity Group in Boise Idaho.

Pending Home Resales in U.S. Probably Rose for a Fifth Month

Aug. 4 (Bloomberg) — The number of Americans signing contracts to buy previously owned homes probably rose in June for a fifth month as lower prices and mortgage rates attracted buyers, economists said before a report today.

The projected 0.7 percent gain would follow a 0.1 percent increase in May, according to the median estimate of 33 economists in a Bloomberg News survey. A report from the Commerce Department may show personal incomes fell 1 percent in June, the biggest drop since August 2005.

Foreclosure-driven declines in home values are putting houses within reach of first-time buyers, helping to stabilize the slumping real-estate market which has been the biggest drag on economic growth. At the same time, with mortgage rates no longer dropping and unemployment still rising, it may be months before a sustained recovery in housing takes hold.

“We’re starting to see tentative signs of stabilization in housing,” said Anika Khan, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Rates are still low and prices are low. Even though lending standards are still somewhat tight, we are able to see some folks enter the market and get steals.”

The report from the National Association of Realtors is due at 10 a.m. in Washington. Estimates in the Bloomberg survey ranged from a 1.2 percent drop to a 3 percent gain.

Pending resales are considered a leading indicator because they track contract signings. NAR’s existing-home sales report tallies closings, which typically occur a month or two later. The group, whose pending data goes back to January 2001, started publishing the index in March 2005.

Spending, Incomes

The report from Commerce today may show consumer spending rose 0.3 percent in June before adjusting for inflation, according to the Bloomberg survey. For the second quarter, purchases dropped at a 1.2 percent annual pace after taking into account changes in prices, Commerce reported last week.

Incomes are forecast to fall after jumping in May by the most in a year as tax cuts and the Obama administration’s stimulus package pushed the U.S. savings rate to a 15-year high.

Homebuilder stocks have climbed over the last month amid evidence that demand is settling at low levels or picking up. The Standard & Poor’s Supercomposite Homebuilding Index rose 22 percent in July and closed yesterday at 261.28, the highest level since May 4.

The agents’ association said July 23 that home resales in June rose for a third straight month, supporting the case that the industry’s downturn, now in its fourth year, will end in 2009. The median price dropped 15 percent from a year earlier.

Sales of new homes soared 11 percent in June, the most since 2000, according to Commerce data released July 27.

Affordability Index

The Realtors’ group’s affordability index, which takes into account home values, household incomes and mortgage rates, reached a record high of 178.8 in April. The index was at 159.2 in June. Readings greater than 100 indicate a family earning the median income can afford a median-priced home at current borrowing costs.

M.D.C. Holdings Inc., the Denver-based builder of Richmond America Homes, said July 31 that its orders had increased on a quarterly basis for the first time in four years.

“Building and sales activity for the industry overall improved from historic lows recorded earlier this year,” M.D.C. Chief Executive Officer Larry Mizel said in a statement.

While mortgage rates have crept higher as the economy improves, they are still below year-earlier levels and near record lows. The average rate on a 30-year fixed mortgage was 5.25 percent in the week ended July 30, according to Freddie Mac, compared with 6.52 percent in the same week a year earlier. Rates reached an all-time low of 4.78 percent in late April.

Labor Market

A weak labor market is one reason economists say a rebound in housing will be slow to develop. The unemployment rate, which reached a 25-year high of 9.5 percent in June, may exceed 10 percent by early 2010, according to the median forecast of economists surveyed by Bloomberg last month.

The Labor Department is scheduled to release July payrolls data on Aug. 7.

Rising defaults and foreclosures may depress property values for months, making buying a home risky even as such purchases become more affordable and perpetuating a difficult climate for homebuilders.

Foreclosure filings reached a record 1.5 million in the first half of the year, according to data from RealtyTrac Inc., an Irvine, California-based seller of default data.

Ryland Group Inc., a California homebuilder that focuses on first-time buyers, reported a second-quarter loss on July 30 that was greater than analysts estimated. New orders fell 16 percent to 1,716 in the period, the company said.

Prime Equity Group