Mortgage Disclosure Improvement Act – Your Government does it Again

Once again the Federal Government is making getting a home loan more difficult, time consuming and cumbersome. The Mortgage Disclosure Improvement Act (MDIA) has good intentions, like many government mandates, it seeks to protect us, boneheaded citizens, from every possible harm because we are apparently not smart enough to make decisions on our own or to understand what we are doing (ouch, sorry, is my frustration with issues like this showing?). Pretty soon we’ll all be required to wear crash helmets in our cars.

Regulation Z is the old law regarding Truth In Lending disclosures. Prior to July 31st Reg Z required mortgage lenders to provide a Truth in Lending disclosure to all home loan applicants within 3 days of making a loan application. A good rule for consumers as your potential mortgage lender had to tell you about the total cost of obtaining the loan you were applying for and this would be helpful for you to make the decision as to whether you wanted to use that lender or not. Many lenders, my office included, would provide potential clients with a Good Faith Estimate and Truth in Lending disclosure prior to an application being completed so they can compare us to other lenders. This is just good honest business.

The new Mortgage Disclosure Improvement Act (MDIA) takes this in a whole new direction. The new rule basically expands in a couple of different ways which will have a significant impact on the length of time it takes to get a borrower from application to closing. The first is that a lender may not collect an appraisal fee or order an appraisal until the 4th business day after a Truth in Lending disclosure is issued to the borrower. Normally if a home buyer comes to me on a Monday to apply for a purchase loan and is in a rush to get the deal to closing we could order the appraisal on Monday. Under the new rule we cannot order the appraisal until Friday and so we basically lose a week right off the bat.

The second problem starts after the loan is approved and you want to close. Once the closing is scheduled we now have to send a new Truth in Lending Disclosure to the borrowers and allow a total of 6 business days for them to receive and review the disclosure before a closing can occur. So, if your loan is clear to close on Monday we could normally close as early as Wednesday. Under the new rule we have to send out a new disclosure Monday and allow 3 days for receipt and 3 days for review and the first day the loan can close is the following Monday – another week lost.

End result – government regulation adds 2 weeks to the time it takes to obtain a home loan! I know your question already; Can the borrower waive these waiting periods? No. Because lenders will be very concerned to be following the rules no one will allow a waiver of any of the waiting periods. What do you need to do if you are buying a home? Add a couple of weeks to the anticipated closing date. The days of quickly getting a home loan are over. Plan on a 45 day time-line to get to closing.