MORTGAGE DISCLOSURE IMPROVEMENT ACT (MDIA) GOES INTO EFFECT ON JULY 30, 2009
On July 30, 2009, some of the provisions of the Mortgage Disclosure Improvement Act of 2008 (MDIA) go into effect and lenders, mortgage brokers, title agents, real estate agents, and real estate brokerages need be alert as to these new federal governmental regulations. Here are the details for the MDIA:
1. The 3/7/3 Rule requires a seven business day waiting period once the initial disclosure is provided before closing a home loan (business days are everyday except Sundays and Holidays). This means that before a borrower can close on a transaction the borrower must receive the initial Good Faith Estimate (GFE) and initial TIL statement disclosing the final Annual Percentage Rate (APR) seven days prior to closing.
2. If the final annual percentage rate APR is off by more than .125% from the initial GFE disclosure then the lender must re-disclose and wait yet another three business days before closing on the transaction.
3. The consumer has the right to cancel and not proceed with the transaction if they so choose.
4. Lenders are forbidden from collecting money for appraisals, loan applications, etc. prior to the delivery of the Truth In Lending (TIL). Lenders can only collect from the borrower the credit report fee at the time of prior to delivery of the final TIL. No other fees are permitted to be collected at the time of application. If the TIL is sent by mail, additional charges can occur after the 3rd business day after the borrower receives the TIL in the mail.
5. The following language must be clearly written on the initial and final TIL: "You are not required to complete this agreement merely because you have received these disclosures or signed a loan application."
If you are a real estate agent or title agent you need to manage the process very carefully by:
A. Making sure that you check the initial Good Faith Estimate and Truth In Lending form for your buyers and look for discrepancies in charges. The new rules were put in place to protect consumers from being low balled one figure by a loan officer only to find out at the closing table that the fees charged were much higher. The new MDIA rules will absolutely delay closings if these steps are not followed carefully.
B. Buyers, sellers, and real estate professionals should not schedule a closing until the borrower has completed the seven day waiting period as required in the initial TIL.
Here are three examples of the "3/7/3 Rule" of the MDIA:
Example A.
1. August 1st the loan application is taken;
2. August 2nd the initial TIL is sent in the mail;
3. August 10th the closing can occur on this day or after this day if the initial TIL was received
and the APR was within the .125 of the final TIL.
Example B.
1. August 1st the loan application is taken;
2. August 2nd the initial TIL is sent in the mail;
3. August 4th the borrower's interest rate increases causing the APR to increase by more
than .125 (1/8th) percent which triggers a re-disclosure of another TIL;
4. August 5th the revised initial TIL is mailed to the borrower. The borrower can close on the
transaction at the earliest on August 13th (add a day to account for Sunday).
Example C.
1. August 1st the loan application is taken;
2. August 2nd the initial TIL is sent in the mail;
3. August 20th the borrower's interest rate increases causing the APR to increase by more
than .125 (1/8th) percent which triggers a re-disclosure of another TIL;
4. August 20th a revised initial TIL is mailed to the borrower;
5. August 23rd the borrower receives the revised initial TIL in the mail;
6. August 26th (unless it falls on a Sunday then the 27th) the borrower can close on their
residential real estate transaction and sign the mortgage documents on this day or later if the
final TIL doesn't once again increase by .125 otherwise you can start the entire process all
over again.
Comments
This post has proved extremely valuable to me as a real estate professional.Thank you for clarifying the issues so well!
Posted by: CJ Mennie | July 21, 2009 1:32 PM
WARNING: The MDIA clearly states the disclosure process must restart if the APR "changes" more than .125% in rate. This means if the clients receives a LOWER rate the process must restart. It is not just for increasing APR's - It is also for lower APR's. Thank you, Danny C. Flucke Jr. / www.NaMoEx.com
Posted by: Danny C Flucke Jr | July 23, 2009 10:35 AM
Danny--
You are correct if the APR is off by .125% in any direction (higher or lower) then the process does restart.
Sincerely Yours,
Marx Sterbcow
Posted by: Marx Sterbcow | July 24, 2009 11:49 AM
Does pulling a credit report on a borrower for the purposes of mortgage qualification constitute the application date according to RESPA? This is the way I was taught years ago but cannot locate this in RESPA provisions. Thanks.
Posted by: Vicky Martin | July 28, 2009 3:06 PM
I am happy we have this in place that will help me and my customer have a better GFE and don't have to go back and change the total amount. This will help everyone be on the same page. Great Job!
Posted by: Miguel Angel Sanchez | July 28, 2009 3:47 PM
This is a joke! The fact that anytime the rate changes by .125% in either direction is the most assnine rule I've heard of. This means ANY rate change will be effected because I've yet to hear of a change of less than .125%. Rates always change by a minimum of .125% . This will lead to multiple delays and will effect the back to back closings. What dumbass created this?
Posted by: John Treacy | July 31, 2009 9:48 AM
Thank you for very concise and clear details. But there's one element still puzzling...about no fee collection until the "Lender" has sent initial disclosures. I am a NJ broker and since we arrange loans through Lenders and mostly our applications are taken face to face how does detail #4 impact us? Can we collect our application fee after borrower has signed our initial GFE at the time of face-to-face application or do we first register the loan with the Lender and then wait 3 business days for delivery of LENDER'S disclosures before we collect fee?
Posted by: Minna Dua | July 31, 2009 2:45 PM
Minna,
We have been inundated with MDIA questions regarding this and unfortunately there is mass confusion on the fee collection issue primarily due to the fact that lenders themselves are sending out conflicting legal guidance which is really confusing the lending industry. There are rumors that guidance will be issued in the next week or so on this topic.
Posted by: Marx Sterbcow | July 31, 2009 4:44 PM
3/7/3 Rule. Why 3 twice? 3 days to review things.
Why another 3?
Posted by: Pete Scheper | August 2, 2009 6:58 PM
Minna:
For MDIA purposes, the "Creditor" is the entity that appears on the loan as a lender. Since you are a broker, you are not allowed to collect any money at front until the actual "lender" send disclosures and waithing periond has expired. To bad for mortgage brokers.
Posted by: Joel Paz | August 4, 2009 4:59 PM
If an investor who already owns several rental homes is going to purchase another single family home and rent it to someone else, does the new law apply? The law states "any consumer dwelling", but does that mean a only dwelling a in which the consumer plans to live?
Posted by: Rick Godwin | August 5, 2009 2:00 PM
Can appraisals be ordered prior to disclosing, as long as no fee is collected?
Posted by: Dan | September 11, 2009 2:49 PM
What if rates changes due to buying down rate? Does this 3 day disclosue still apply?
Hummm.
Posted by: Francesca Novak | September 18, 2009 12:11 PM
If a customer receives the disclosure on a Friday, what day can the loan does be consummated (signed)?
Posted by: g valen | September 18, 2009 3:35 PM
Why does the process start all over if the APR is lower by .125 % as you are penalizing the borrower and lender for an "error" in borrower's favor?
Rusty Solomon
Marx Sterbcow says:
Rusty--the answer is YES the process would start over even if the APR is lower by more than .125%.
Posted by: Rusty Solomon | September 30, 2009 1:29 PM
What if the borrower pays an appraiser directly, not through the lender. Do we have to Do we still have to show evidence that that appraisal was paid to the appraiser and have it be after the 3 day waiting period?
Posted by: Elizabeth Portillo | September 30, 2009 6:57 PM
If a LO takes a face to face application, can they collect the cost of an appraisal right after the borrower signs the til?
Posted by: Tim Wooding | October 5, 2009 10:57 AM
How does this change (if at all) the trigger for 3 day right to cancel.... is it calculated based off the corrected TIL or the Final TIL provided at close. Is a final TIL still reqired at close?Please advise.
Posted by: Alis | October 16, 2009 5:06 AM
if you hand deliver the pre-lim documents on the same day as the application...can that be counted as day 1. All examples show mailing the docs.
Marx says:
Yes if they are hand delivered then that can be counted as Day 1.
Posted by: Jackie | November 12, 2009 12:47 PM
How does the disclosure of fees on the new GFE affect MDIA? Without a breakdown of fees listed as PFC and non-PFC, how can an accurate TIL calculation be made?
Posted by: Eve | November 29, 2009 11:02 PM
Does pulling a credit report on a borrower for the purposes of mortgage qualification constitute the application date according to RESPA? This is the way I was taught years ago but cannot locate this in RESPA provisions. Thanks.
Posted by: Ryan | December 3, 2009 5:50 PM
I am a broker. We went all the way to funding to have the lender tell us that our intial TIL had to be in the lenders name and not ours! Does anyone know if this is correct? Does not make sense to me.
Posted by: S McGreer | December 11, 2009 3:05 PM
Question for anyone..As a mortgage broker, I've been told that if the fees increase or decrease by more than $100, then the borrower needs to be re-disclosed to. Is this correct?
Posted by: Paul | December 16, 2009 1:12 PM
My clients are currently being subjected to the 3 day waiting period since their APR increased .125% recently. My question is, can my loan docs be drawn and the buyers sign the loan docs during the 3 day waiting period, but not actually close the loan until after the three days?
Posted by: Joseph | January 11, 2010 4:24 AM