Alphabet Soup Feds Cooked Up Pretty Tasty to Consumers
Times are Changing, So are Loan Regulations
Okay, I’ll just come right out and say it – I’m not a big fan of government regulations that complicate the already arduous task of loan processing. In fact, I don’t know anyone who is a big fan of federal alphabet soup. (No one, but no one is better at making alphabet soup than the federal government).
New rules and regulations have arrived and others are coming down the pike and I’ve decided to hold off on having lunch and just go ahead and take a big old bite of this alphabet soup. While there will no doubt be a learning curve for those involved in the real estate industry, including buyers, sellers and Realtors®, it is advisable to have good disclosure processes in this day of age. These changes will be – overall – good for the future of our industry.
Let’s start with definitions:
HERA: Housing and Economic Recovery Act. This Congressional act passed in 2008 in the midst of an economic crisis like none the United States has seen in decades. Congress and the Federal Reserve Board published the regulations under the Truth in Lending Act.
Why? It’s simple. The government decided it was time to crack down on deceptive lending practices. There appeared to be a major need to protect consumers. The basic strategy here is to keep consumers more informed in an effort to boost confidence.
HOEPA: Home Owner’s Equity Protection Act. This act, originally passed in 1994, is designed to protect consumers from predatory lenders. It sets down rules and guidelines that were intended to help consumers make more sound judgments when deciding on a lender. The Housing and Economic Recovery Act calls for some stringent restructuring of this protective measure and it will change the way we all do business.
HVCC: Home Valuation Code of Conduct. This is not a law, but an agreement based on the premise that faulty appraisals could be contributing to our economic crisis. HVCC became effective on May 1, 2009. It lays out some standard for appraisal:
- Solicitation
- Selection
- Compensation
- Conflicts of interest
Why should you care?
If you are involved in the real estate industry in any way as a real estate agent, broker, consumer, lender, appraiser, etc. – your real estate world has changed or will change soon. Processes, documentation, and oversight are just of the few changes you can expect.
HERA – Housing and Economic Recovery Act
Let’s look at the Housing and Economic Recovery Act first. To detail the entire Housing and Economic Recovery Act here would be pointless and you would surely be interrupted by someone (please, anyone) before you could get through it all. Suffice it to say that HERA is the avenue through which many reforms are traveling to correct a housing market gone terribly wrong. Among the goals of this act are those set out to make housing more affordable, end shenanigans played by some bad team players in every real estate related industry with heavier oversight and stimulate the market by boosting consumer and investor confidence.
May 1, 2009: HVCC – Home Valuation Code of Conduct Comes into Play
Already in place, the HVCC seeks more accurate appraisals by protecting professional appraisers who have complained about undue influence from many directions to adjust appraisals to meet others’ expectations rather than on the merits of the data they gather.
In short, HVCC requires that borrowers receive a copy of their appraisal reports a minimum of three days before
ensuring that borrowers have sufficient notice of appraisal content by requiring that borrowers receive a copy of their appraisal reports no less than three days before their loans close. Borrowers can opt out – but why would they?
Again, this agreement is for loans that will likely be sold to Fannie Mae or Freddie Mac.
July 30, 2009 HOEPA – Home Owner’s Equity Protection Act Reforms Enforced
This act has been around a while, but reforms amend the Truth in Lending act and have many provisions such as the Mortgage Disclosure Improvement Act. Truth in Lending Act requirements are changing to give borrowers faster disclosures and final disclosures. It sets guidelines for exactly when certain loan processing fees can be collected.
What Does All of this Mean to the Borrower?
- A seven-day waiting period to review initial disclosures. If you are a home buyer financing property, these new guidelines could dictate your closing date. While purchase contracts can still be written with an estimated closing date, the regulations require a minimum of seven days between the time a borrower receives initial disclosures from the lender and closing.
- A chance to review disclosures before you pay processing fees. A lender can’t collect upfront fees until the first disclosures are delivered. If a loan application is taken in person and disclosures are delivered at that time, the fees can be collected immediately. Prior to July 30, 2009, lenders can ask for upfront fees at the time of application before disclosures are delivered. (There is an exception in credit report fees. Lenders can still ask for that fee when you apply.)
- A copy of your home appraisal in advance. A homebuyer has to receive a copy of his or her appraisal at least three days before closing. Homebuyers do have the option to wave the three-day requirement.
- Time to review final Truth in Lending disclosures before you sign on the dotted line. Homebuyers have complained they were rushed into signing loans without really understanding the conditions. The new regulations require that borrowers receive a Truth in Lending statement at least three days before closing. This will give borrowers time to review costs associated with the loan without the pressure of a loan officer. If a borrower’s Annual Percentage Rate (APR) is increased by more than .125 percent from the time the initial TIL disclosure is delivered, the TIL disclosure has to be revised and delivered three days before closing.
My own alphabet soup is admittedly watered down in the interest of time – yours and mine. If you need help understanding the changes in these regulations, don’t hesitate to contact Prudential Utah Real Estate. Our professional associates will guide you through new rules and regulations that change the way we all buy and sell real estate.
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Joel Carson is president and owner of Prudential Utah Real Estate in Salt Lake City, Utah. For more information visit http://www.pureutah.com.
