New lending rules that require mandatory disclosures and waiting periods for mortgage loans have many lenders advising buyers, sellers and real estate agents to plan for at least 30-day closings and to expect possible delays. The regulations, which went into effect July 30, are part of an amendment to the Truth in Lending Act that seeks to ensure consumers receive cost disclosures earlier in the mortgage process, says the Federal Reserve Board.
The new rules apply to all mortgages secured by the borrower's home, including primary and second homes as well as refinancings, and require lenders to give good faith estimates of mortgage loan costs within three business days after receiving a consumer's application for a mortgage loan. The rules prevent any fees from being collected before the consumer has received the early disclosures except for a reasonable fee for obtaining a credit report.
The new rules also include various waiting periods, including the requirement that a home loan cannot close until seven days after the borrower has been issued the initial disclosures.
Furthermore, the new regulations require lenders to disclose if the annual percentage rate on the loan changes by more than 0.125 percent from the amount stated in the initial disclosure. If there is a need for a corrected disclosure, the consumer has another three days to review the new document before the loan can close. Because APR is affected by a variety of items, a corrected disclosure may be needed if there are changes in the interest rate, loan product, closing date, settlement fees or other related items. If these changes occur unexpectedly, it could push back the closing.
In similar fashion, the Home Valuation Code of Conduct gives home buyers three days to review a copy of the appraisal before closing on the loan, unless they wait the right.
In addition to the new review periods, mailing dates could affect closings as well. In cases where the disclosures are mailed, they won't be considered received until three business days after the lender places them in the mail. For example, if corrected disclosures are mailed, the earliest the buyer could close would be on the sixth business day after the mailing (i.e., three business days for mailing and three business days for consumer review, with the consumer being allowed to close on the third review day). (Note: In terms of the three- and seven-day waiting periods, a business day is defined as all calendar days except Sundays and legal public holidays.)
Taken together, the new waiting periods could unexpectedly delay closings, especially if an appraisal comes in late or the APR changes. While the borrower may be able to waive the truth-in-lending waiting periods in a bona fide personal financial emergency, do not rely on this exemption. In your contracts, make sure your settlement deadlines provide enough time to accommodate for the new waiting periods. If you do end up in a situation where your buyers won't be able to meet the settlement deadline because of the timeframes in the new regulations, make sure to extend the REPC with an addendum.