July 2, 2014
Credit Union Management magazine’s Web-only “Loan Zone” column runs the first Wednesday of the month.
The implementation guidelines for several Dodd-Frank legislative rules took effect in January 2014. These rules have a significant impact on home financing, especially timelines in the mortgage process. In an effort to ensure there are no surprises along the way for your members as they purchase, sell, or refinance their home, check out this brief summary to help explain how these changes will play a part in their home buying experience.
- Three business days before closing.
The guidelines implementing the Home Ownership and Equity Protection Act require that all mortgage applicants be provided a written list of home-ownership counseling organizations within three business days of submitting their loan application. The new disclosure must list up to 10 counseling locations convenient to the applicant, with the address, phone number, services provided and languages supported by each counseling organization. Applicants are not required to contact a counseling agency, but the lender is required to provide the list.
- Three business days before closing, redux.
According to the implementing guidelines of The Equal Credit Opportunities Act (Reg B), lenders must provide applicants copies—at least three business days prior to closing—of all appraisals and all other written valuations developed in connection with an application for a loan to be secured by a first lien on a dwelling. This is true even if the valuation is only used for limited purposes. If the homebuyer believes the three-business-day review period is not necessary, he or she has the right to waive that requirement, unless the loan is a Section 35 Higher-Priced Mortgage Loan.
- Possibility of a delayed closing.
The Truth-in-Lending Act Higher-Priced Mortgage Loans Appraisal Rule (Section 35 HPML) guidelines set out a scenario in which closing may be delayed by the requirement of a second appraisal:
The guidelines say a loan is “higher priced” if it is a first lien (not jumbo) mortgage and the annual percentage rate exceeds the average prime offer rate by 1.5 percent or more. Several factors affect APR, such as: interest rate changes while the rate isn’t locked, product change, change in closing date, change in loan amount, interest rate re-lock due to market improvement, and changes in fees. A flip-test for higher-priced mortgage loans determines whether a second appraisal is needed on the home. A second appraisal is required if there is:
- more than a 10 percent price increase if the seller acquired the property in the past 90 days; or
- more than a 20 percent price increase if the seller acquired the property in the past 91-180 days.
A second appraisal may delay the original estimated closing date. Also, while the cost of the first appraisal is paid by the borrower; the cost of this second appraisal must be absorbed by the lender. There are several exemptions that would eliminate the transaction from the second appraisal requirement, including if the loan is a qualified mortgage, for initial construction or a short sale.
Make a home loan at your credit union a stress-free experience for your members by being informed and setting proper expectations about the timing of each step of the process—or by making sure your outsourcer is doing so.
Wallace Jones is VP/training for CU Members Mortgage.