Housing and Economic Recovery Act (HERA)

Surprisingly, I have heard little out of the real estate community about the upcoming changes that are taking place on July 30 in regards to lending practices. This makes me a little nervous that Realtors and Lenders will not be prepared for the upcoming changes, causing confusion and frustration between Realtors, lenders, buyers and sellers. The changes, in my opinion, will create 45 -60 day closings for a while until processes are understood and implemented. Which is why, in the intial stages of this, when I write up an offer for a buyer or get an offer on a property that I have listed, I will be insisting on at least a 45 day close.

In the past, Lenders were able to collect up front fees from the buyers. These fees were mostly to cover the cost of the credit report and for the cost of the appraisal. In doing this, the lender was able to order the appraisal right away which sped up the process of getting the loan processed quickly.

With the new laws, lenders will still be able to collect the upfront fee for the credit report, but will no longer be able to collect the upfront fee for the appraisal. The reason for this, is that the new law dictates that the buyer must recieve their disclosures for the loan for review. These disclosures have always been sent out in the past, but by the time the buyer had them to review them, the appraisal may have already been ordered which could make the buyer more apt to feel obligated on going on with the loan even if they disagreed with the terms. The new law says that the appraisal fee can be collected 1 day after the buyer has received the overnight package containing the terms to be reviewed. This is meant to give the buyer more of an opportunity to ask questions before preceeding. The effect of this could be about a 5-7 day delay from how the loan was processed in the past.

The other really big change is in the Truth In Lending Dislclosure which is referred to as a TIL in the industry. The TIL will be given out at the begining of the process and again at the end of the process, which was done before as well. The TIL will reflect the lender fees that are involved with your loan so that you know exactly what you are being charged for by the lender. These "Fees" that are listed is figured into your Annual Percentage Rate (APR) for your loan. The more fees and such that are added into your loan, the higher the APR will be from the loan percentage rate that you have. An example would be that the interest rate of your loan may be 6% but the APR might show 6.375% because of the fees that are added in. The APR will always be higher then the percentage rate of the loan.

The big change in this TIL comes near the end of the transaction. In the past, the buyer may not see a new TIL until they get to the closing table. Since the first TIL you recieve usually is not the most accurate, the closing TIL will differ usually from the 1st one that you see. This can be a shock to buyers. Starting July 30, the new law says that the buyer MUST have at least 3 days to review the new TIL before closing if the new TIL will be .125% different then the first TIL. Which it most certainly will be. So, this change will cause at least a 3 day delay over the past way of closing loans. Basically meaning that the closing will be done and ready and sitting there for at least 3 days before we close on the house.

When you add up those changes, it results in a 7-14 day delay in closing over how things were done in the past. With the current economic climate we are in where everyone has cut back on staffing, 30 -45 day closings are very common right now before these laws take effect. That is why, for the time being, the new typical closing time will probably be 45-60 days.