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New rules require disclosure of mortgage fees

Keneth Harney
Sunday, July 19, 2009

If you're applying for a loan to purchase a primary or secondary home, or
planning to refinance, you should be aware of a little-publicized new set
of federal consumer-protection rules that take effect July 30.

Among other key changes, the new Federal Reserve guidelines require
lenders to provide initial disclosures of your mortgage costs within three
business days of your loan application. If you don't get them, you can
pull the plug.

The rule also prohibits lenders from collecting any fees - except a
reasonable charge for checking your credit - until you've been given the
loan-cost disclosures. This means no more application charges until you've
received the truth-in-lending disclosures and an annual percentage rate
calculation of those loan costs.

Because many mortgage brokers and lenders traditionally have collected
fees covering appraisal, credit and various other charges at the time of
application - sometimes amounting to hundreds of dollars - this will be a
significant change in procedure for the lending industry.

The rule also prohibits quick closings on loans by requiring a seven-day
waiting period after applicants are handed their early disclosures or the
disclosures are mailed. You'll have as much as a week to think about the
transaction. Final truth-in-lending disclosures are due three business
days before closing.

Here's an even more sweeping change for applications on or after July 30:
The new rules require lenders to deliver a copy of the real estate
appraisal to you three business days before the scheduled closing on the
loan.

Now, the timing of the loan closing - which is the financial ballgame for
loan officers, realty agents, title and escrow officials - will be
dependent upon your receipt of the appraisal in advance. The exception
here will be that the three-day rule can be waived if you don't think
receiving the appraisal is necessary.

Another significant change under the new rules: If the interest rate on
the early truth-in-lending disclosure increases by more than one-eighth of
a percentage point (0.125), the lender will be required to provide you a
corrected version and allow you an additional seven business days to
consider the transaction before settlement.

What are some of the likely repercussions of the Fed's new mandates?
Closing dates will be more closely tied to lenders' and settlement agents'
accurate estimates and their ability to deliver disclosures and appraisals
by the required dates.

The purpose of the rules is to afford consumers better access to, and more
time to consider, key elements of what are major financial transactions
for most people. There might be fewer instances of last-minute
closing-date surprises on fees, where buyers are slammed with hundreds of
dollars of charges they'd never expected. But nobody can say that for
sure.

The rules may well lead to new waves of litigation if lenders and their
business partners are not scrupulous in their compliance. There is an
active and aggressive segment of the legal profession that specializes in
going after banks and mortgage companies for truth-in-lending violations.
Don't be surprised if you hear of lawsuits seeking cancellation of
mortgage deals because timing deadlines were not met or appraisals not
received.

E-mail the writer at kenharney@earthlink.net.

Copyright 2009 SF Chronicle
This article appeared on page H - 4 of the San Francisco Chronicle

 
 
 
 

Keneth Harney
Sunday, July 19, 2009

If you're applying for a loan to purchase a primary or secondary home, or
planning to refinance, you should be aware of a little-publicized new set
of federal consumer-protection rules that take effect July 30.

Among other key changes, the new Federal Reserve guidelines require
lenders to provide initial disclosures of your mortgage costs within three
business days of your loan application. If you don't get them, you can
pull the plug.

The rule also prohibits lenders from collecting any fees - except a
reasonable charge for checking your credit - until you've been given the
loan-cost disclosures. This means no more application charges until you've
received the truth-in-lending disclosures and an annual percentage rate
calculation of those loan costs.

Because many mortgage brokers and lenders traditionally have collected
fees covering appraisal, credit and various other charges at the time of
application - sometimes amounting to hundreds of dollars - this will be a
significant change in procedure for the lending industry.

The rule also prohibits quick closings on loans by requiring a seven-day
waiting period after applicants are handed their early disclosures or the
disclosures are mailed. You'll have as much as a week to think about the
transaction. Final truth-in-lending disclosures are due three business
days before closing.

Here's an even more sweeping change for applications on or after July 30:
The new rules require lenders to deliver a copy of the real estate
appraisal to you three business days before the scheduled closing on the
loan.

Now, the timing of the loan closing - which is the financial ballgame for
loan officers, realty agents, title and escrow officials - will be
dependent upon your receipt of the appraisal in advance. The exception
here will be that the three-day rule can be waived if you don't think
receiving the appraisal is necessary.

Another significant change under the new rules: If the interest rate on
the early truth-in-lending disclosure increases by more than one-eighth of
a percentage point (0.125), the lender will be required to provide you a
corrected version and allow you an additional seven business days to
consider the transaction before settlement.

What are some of the likely repercussions of the Fed's new mandates?
Closing dates will be more closely tied to lenders' and settlement agents'
accurate estimates and their ability to deliver disclosures and appraisals
by the required dates.

The purpose of the rules is to afford consumers better access to, and more
time to consider, key elements of what are major financial transactions
for most people. There might be fewer instances of last-minute
closing-date surprises on fees, where buyers are slammed with hundreds of
dollars of charges they'd never expected. But nobody can say that for
sure.

The rules may well lead to new waves of litigation if lenders and their
business partners are not scrupulous in their compliance. There is an
active and aggressive segment of the legal profession that specializes in
going after banks and mortgage companies for truth-in-lending violations.
Don't be surprised if you hear of lawsuits seeking cancellation of
mortgage deals because timing deadlines were not met or appraisals not
received.

E-mail the writer at kenharney@earthlink.net.

Copyright 2009 SF Chronicle
This article appeared on page H - 4 of the San Francisco Chronicle

 
 
 
 
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Licensed by the California Bureau of Real Estate
License number 00685309
NMLS number 338105
Equal Housing Lender
Licensed by the California Bureau of Real Estate
License number 00685309
NMLS number 338105
Equal Housing Lender