Recently, some changes were made to Regulation Z and RESPA that affect lenders and their requirements to disclose fees for their services and the total cost of the loan. The changes affect specifically how lenders are required to deliver the Truth in Lending (TIL) statement and what they are/are not able to change once they have quoted you/your client fees on the Good Faith Estimate (GFE).
Since I’m not a lender, I’m going to keep this simple and cover the basics as they apply to the average residential transactions.
· Lender must provide the initial TIL disclosures (GFE) no later than 3 business days after receiving a completed loan application.
· Until you receive the disclosures (GFE), lenders cannot collect any fees other than the appropriate fee for a credit check. This means in most cases the lender cannot collect application or appraisal fees until 3 days after application, assuming a GFE is issued. After a loan applicant receives the GFE and indicates that they wish to proceed with the loan, the lender may collect additional fees.
· A final TIL disclosure is due 3 days prior to closing.
· The lender must provide a copy of the appraisal to the borrower 3 days prior to closing.
· The lender cannot close the loan for at least 7 days after the borrower receives (or the lender has mailed) the initial TIL disclosure.
· If there is any change to the TIL disclosure that increases the APR beyond “allowable tolerances”, the lender must issue a new TIL disclosure reflecting the changes and allowing an additional 3 days for review prior to closing. Also, the regulation assumes a 3 day delivery period so that if the lender mails the new TIL disclosure, the lender must allow 3 days delivery time and 3 days review time for a total of 6 days.
· Lender must implement and use revised GFE and HUD 1 settlement forms effective January 1, 2010 (For details on the new forms go to this link:http://www.parealtor.org/content/upload/AssetMgmt/Publications%20News%20and%20Research/2009PARealtor/AprilREALTOR-4PageInsert_new.pdf)
· Failure to implement and use the new GFE and HUD1 forms as required is a violation of Section 5 of the real estate Settlement and Procedures Act (RESPA).
· Any and all charges typically paid by the borrower must be stated on the GFE. The new rules make it unlawful for lenders to add additional undisclosed charges. Items cannot be listed as POC in an effort to avoid stating the fees, all fees to be collected must be stated on the initial TIL disclosure (GFE).
· The GFE and its associated fees must be valid for at least 10 business days after issuance. If the borrower does not express intent to continue with the loan, the GFE is allowed to expire at the end of 10 business days. Until then the lender is bound to honor the offered terms.
· Fees stated in the initial TIL disclosure may not change beyond certain specific tolerance limits unless a “substantial change” has taken place, such as borrower qualifications changing, appraisal issues, etc. If the fees do change outside allowable limits, the lender must initiate a cure (as in correct the fees to match those originally stated or rebate the borrower accordingly within 30 days after settlement). It is considered a violation if the lender asks other settlement service providers to reduce fees so that total costs fall within the tolerance limits.
So, what does this all mean for you? Well, to start it’s a good thing; the regulations require lenders to proceed in such a way that buyers getting whacked with last minute fee and rate changes are a thing of the past. The not so good part? Well, it takes time. This process, providing no changes, lengthens the time required for an average settlement, which along with the new HVCC regulations regarding appraisals; pretty much makes 30 day closings a thing of the past to. Oh, and that last minute change that requires the re-disclosure and mandatory 3 day waiting period? Well, if lenders don’t get it right from the start, there will be delayed closings that no amount of yelling by unhappy clients or agents will fix. We’ll be stuck, waiting, if the lenders can’t keep their hands off the TIL.
As always, if you have questions, need real estate advice or want to buy or sell a home, you can call or text me at 717-371-0557, email me at Jason@JasonsHomes.com or contact me at the office at 717-490-8999!
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