The newly passed HERA or Housing and Economic Recovery Act begins July 30, 2009. Not only will this affect the time frame for making loans for us here in the Seattle housing mortgage arena, it will also affect the time frame for all loans made across the nation.
Until now, when a loan officer prepared a loan application, there was a 3-day period where the loan officer had to send information to the person buying or refinancing a home. This was a requirement under TILA - Truth and Lending Act. It disclosed the financing cost, APR, amount financed, payment schedule and total payments. During this time, a loan appraisal and other items can be ordered on behalf of the borrower to help advance the loan in the process for a purchase or refinance transaction.
The HERA requirements regarding the TILA are going to change everything. The time frames used to, and how the loan is processed. This affects every borrower on every loan with every lender. Under the new requirements, the loan application form must be given to the borrower 3 days prior to being charged at the acceptance of the credit report. An appraisal or additional services cannot be ordered. The problem here is, how do you know the borrower has even looked at the documentation?
Most lenders will do the following when it comes to HERA. To start the process they allow for a 3 day email and then 3 days review time before an appraisal or other services can be ordered. This adds another 7 business days to the beginning of the loan process, assuming the lender sends the TILA on the date the loan is first submitted to them.
In addition, according to HERA, the TILA should now be within 0.125 percentage points of the originally disclosed APR instead of the traditional 0.25 percentage points of the originally disclosed APR. With such a tight APR requirement and taking into account that a GFE (good faith estimate) is just an estimate, it will likely fall outside the 0.125% APR requirement. This adds another 3 days to email disclosures to a borrower and then 3 days to review for a total of 7 additional days at the end of the lending process. This total at the beginning and the end will add a minimum of 14 business days to the home buying or home refinancing process as we know it today.
The ultimate result here, of course, is the ability to maintain an interest rate that an individual may have taken out a loan for. Most 30-day loan locks will not be feasible. There are only 22 working days in a month, 30 days of locks are not working days, but calendar days. So you can see there is only about 6 to 8 days to underwrite an individual loan, approve terms, order documents, sign surety, a 3 day winding up period if it's a refinance, and then closed. All of this must be accomplished to maintain the 30-day blocking period.
This new legislation means higher costs, more paperwork and ultimately more time for the mortgage process related to buying or refinancing a home.
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