We all know that the real estate market and the mortgage industry has been going through many changes. With past mortgage fraud leading to an all-time high number of foreclosures, the government is taking measures to prevent deceptive lending practices and ensure that buyers are better protected and informed. In 2008, the Home Ownership and Equity Protection Act (HOEPA) and the Housing and Economic Recovery Act (HERA) were passed by Congress, and the Federal Reserve Board published new regulations under the Truth in Lending Act. In addition, Fannie Mae and Freddie Mac adopted the Home Valuation Code of Conduct (HVCC), which will take effect July 30, 2009. These new regulations will affect several aspects of real estate closings.
- Lenders are now required to use an appraiser from a national pool of independent appraisers from around the country. In the past, lenders maintained longstanding relationships with local appraisers, and were sometimes able to influence the values in order to secure financing, which led to some appraisals being inaccurate. The intention of this new regulation is to put more separation between the lender and the appraiser to ensure fair, accurate appraisals. In reality, it also means that the appraiser who is evaluating a property may not be experienced in that specific market. Before the appraiser is scheduled to come to appraise a house, Sellers should have any documentation about the house that might be helpful in the valuation – receipts for work they have had done, a list of improvements they have made and special features about the house. This will help an appraiser who is less familiar with that area deliver the most accurate evaluation possible.
- Buyers are now required to receive a copy of their appraisals no less than 3 business days prior to the closing of their loan. The intention of this rule is to make sure they have ample time to review the appraisal and fully understand the value of the property they are purchasing.
- The earliest any home purchase transaction can close is 7 business days after the homebuyer is issued his or her initial Truth in Lending disclosures from the lender. These documents are typically given to a buyer at the time of the application, but if the buyer and lender don’t meet in person, the requirement allows extra days for mailing (e-mailing isn’t currently an acceptable form of delivery). Again, this insures that Buyers have time to review all the documents.
- Upfront fees that have been typically collected at the time of application can no longer be collected until the Truth in Lending disclosures are received, and the same rules apply as stated above – there needs to be time built in to allow for mailing of these disclosures unless the buyer meets with the lender in person.
- And lastly, any increase in more than .125% in the APR from the initial Truth in Lending disclosures (which can happen for a number of reasons, including a change in the loan amount, an un-locked rate or a re-lock in a rate, changes to fees, etc.) requires the disclosures to be re-issued and received by the buyer at least 3 business days before closing.
Ultimately, what this all means for buyers and sellers is that parties need to allow ample time between contract and closing to address all these issues. Working with a knowledgeable, experienced Realtor who is up to date on the latest rules will ensure that your transaction is structured appropriately to avoid any closing delays due to these new regulations. At Colorado Landmark, Realtors we strive to be up to date on the latest industry issues to provide exceptional customer service to our clients.
This article contributed by:
Jennifer Fly, Broker Associate
Colorado Landmark, Realtors