RESPA Lawyer Blog
On July 30, 2009, some of the provisions of the Mortgage Disclosure Improvement Act of 2008 (MDIA) go into effect and lenders, mortgage brokers, title agents, real estate agents, and real estate brokerages need be alert as to these new federal governmental regulations. Here are the details for the MDIA:
1. The 3/7/3 Rule requires a seven business day waiting period once the initial disclosure is provided before closing a home loan (business days are everyday except Sundays and Holidays). This means that before a borrower can close on a transaction the borrower must receive the initial Good Faith Estimate (GFE) and initial TIL statement disclosing the final Annual Percentage Rate (APR) seven days prior to closing.
2. If the final annual percentage rate APR is off by more than .125% from the initial GFE disclosure then the lender must re-disclose and wait yet another three business days before closing on the transaction.
3. The consumer has the right to cancel and not proceed with the transaction if they so choose.
4. Lenders are forbidden from collecting money for appraisals, loan applications, etc. prior to the delivery of the Truth In Lending (TIL). Lenders can only collect from the borrower the credit report fee at the time of prior to delivery of the final TIL. No other fees are permitted to be collected at the time of application. If the TIL is sent by mail, additional charges can occur after the 3rd business day after the borrower receives the TIL in the mail.
5. The following language must be clearly written on the initial and final TIL: “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.”
If you are a real estate agent or title agent you need to manage the process very carefully by:
A. Making sure that you check the initial Good Faith Estimate and Truth In Lending form for your buyers and look for discrepancies in charges. The new rules were put in place to protect consumers from being low balled one figure by a loan officer only to find out at the closing table that the fees charged were much higher. The new MDIA rules will absolutely delay closings if these steps are not followed carefully.
B. Buyers, sellers, and real estate professionals should not schedule a closing until the borrower has completed the seven day waiting period as required in the initial TIL.
Here are three examples of the “3/7/3 Rule” of the MDIA:
Example A.
1. August 1st the loan application is taken;
2. August 2nd the initial TIL is sent in the mail;
3. August 10th the closing can occur on this day or after this day if the initial TIL was received and the APR was within the .125 of the final TIL.
Example B.
1. August 1st the loan application is taken;
2. August 2nd the initial TIL is sent in the mail;
3. August 4th the borrower’s interest rate increases causing the APR to increase by more than .125 (1/8th) percent which triggers a re-disclosure of another TIL;
4. August 5th the revised initial TIL is mailed to the borrower. The borrower can close on the transaction at the earliest on August 13th (add a day to account for Sunday).
Example C.
1. August 1st the loan application is taken;
2. August 2nd the initial TIL is sent in the mail;
3. August 20th the borrower’s interest rate increases causing the APR to increase by more
than .125 (1/8th) percent which triggers a re-disclosure of another TIL;
4. August 20th a revised initial TIL is mailed to the borrower;
5. August 23rd the borrower receives the revised initial TIL in the mail;
6. August 26th (unless it falls on a Sunday then the 27th) the borrower can close on their residential real estate transaction and sign the mortgage documents on this day or later if the final TIL doesn’t once again increase by .125 otherwise you can start the entire process all
over again.