So you finally got a buyer for your house after having it on the market for nine months. As frosting on the cake the buyer says she can close within a week.
Great! Right? Well, if your buyer made her mortgage loan application on or after July 30, 2009, it may take a little longer.
On July 30, Federal Reserve System rules (http://edocket.access.gpo.gov/2009/E9-11567.htm) went into effect implementing the Mortgage Disclosure Improvement Act of 2008 (MDIA). The rules – -applicable to purchase, construction and refinance situations – – impose various waiting periods between the time a transaction specific disclosure is made by the lender and the time when the residential loan transaction can close. The rules apply to all institutions engaged in closed-end, dwelling-secured lending for consumer purposes that is subject to RESPA.
The rule was going to go into effect in October 2009, but the date was moved up by the Fed two months in mid-May. Home equity lines of credit are excepted from the rule and are instead subject to separate rules for “open-end” credits. Different rules also apply for timeshare interests.
The MDIA and applicable rules amend Regulation Z of the Truth in Lending Act and require lenders to make and deliver (or mail) to the borrower good faith estimates of mortgage related fees no later than three business days after the loan application is made. The loan transaction can close no earlier than seven business days after the disclosures are delivered or mailed (the “7-day wait”).
For those who are counting, ten business days is two weeks.
If the APR for the loan disclosed in the good faith estimate will change (to a specified degree) as of the closing date, a “re-disclosure” of all new terms must be received by the borrower. And three more business days after receipt of the revised disclosure must pass before a loan closing (the “3-day wait”). Disclosures that are mailed are deemed “received” three business days after being posted.
For those still counting, we are now up to as much as three weeks from the time the loan application is made.
There is a “bona fide personal financial emergency” exception to the 3-day and 7-day waiting period. Unfortunately, it is not the personal financial emergency of the seller who needs the cash from the sale.
Instead, the exception relates to the borrower and qualification for the exception is determined on a case by case basis. The one example given in the rule is an imminent foreclosure sale of the borrower’s house before expiration of the waiting period, an exception applicable only in the context of a refinancing. The Fed believes waivers shall not be used routinely and expressly prohibits the use of pre-printed waiver forms.
Because the rule prohibits the bank from collecting any fee (other than a credit report fee) until the required disclosures are received, you can be sure that bankers will place close attention to the rule. Look for title agents to be equally diligent in enforcing the waiting periods, particularly in connection with the underwriting of a loan policy.
All in all, the rule provides added protection for the consumer but the imposition of the new waiting periods can delay the seller’s long-awaited sale of his or her home.