You might be hearing a lot about HOEPA, HERA and HVCC on the news. Acronyms that stand for Home Ownership and Equity Protection Act (HOEPA, the Housing Economic Recovery Act (HERA) and the dreaded Home Valuation Code of Conduct (HVCC).
In 2008, amendments to the Home Ownership and Equity Protection Act (HOEPA) and the Housing and Economic Recovery Act (HERA) were passed by Congress, and the Federal Reserve Board published the regulations under the Truth in Lending Act.
These regulations were written to provide a more transparent, level and fair regulation of the real estate industry; to add additional steps to help prevent deceptive lending practices; and to protect consumers by making them more informed—and therefore more confident—in their home financing choices.
In addition, Fannie Mae and Freddie Mac adopted the Home Valuation Code of Conduct (HVCC) in 2008 to reinforce appraiser independence, valuation protections, and enhance the overall integrity of the valuation process. Well… that did back fire and caused tremendous issues and back logs in the escrow process, but more on that in a later post.
Effective July 30, 2009 HERA amended the Truth in Lending Act (TILA), implemented through Regulation Z and has a number of provisions including the Mortgage Disclosure Improvement Act, which changes the Truth in Lending Act requirements surrounding early and final disclosures to homebuyers and addresses the timing of when fees can be charged.
Four key elements you need to know
1. If the Pasadena home buyer is financing the property, these new regulatory and investor guidelines will impact — and could even dictate — the closing date.
Historically, homebuyers and sellers would agree on a closing date, and then service providers – including lenders – would work as best they could toward meeting that date.
Going forward, real estate purchase contracts can still be written with a specific closing date in mind, but all parties need to take into account that the earliest any Pasadena home purchase transaction can close is 7 business days after the home buyer is issued his or her initial mortgage disclosures from the lender. (Note: Some banks do count Saturdays as a business day for the purpose of disclosures only.)
2. Upfront fees cannot be collected by the lender (except for a credit report fee) until the initial disclosures are received.
If the disclosures are overnighted, they are considered “received” the next business day — (excluding Saturdays) allowing the fees to be collected on the following business day. Historically, upfront fees could be collected immediately at the time of application for both in person and phone applications.
Moving forward, the homebuyer must receive his or her initial disclosures before upfront fees can be collected. The only exception is the credit report fee which can be collected at application. This can delay the ordering of appraisals and can impact the home buyer being able to meet their contractual contingency period.
3. The homebuyer must be provided with a copy of his or her appraisal a minimum of 3 business days prior to closing.
To help expedite the process, some lenders like Wells Fargo Home Mortgage has elected to have a copy of the appraisal issued directly to the home buyer — and the home buyer must receive the appraisal at least 3 business days prior to the mortgage closing. If the home buyer believes the 3-business-day required review period is not necessary for whatever reason, he or she has the right to waive that requirement.
4. An increase of more than .125% in the Annual Percentage Rate (APR) from the initial Truth in Lending disclosure (TIL) requires the TIL disclosure to be revised and reissued to the home buyer.
The Pasadena home buyer must receive a revised TIL disclosure at least 3 business days before closing, providing the home buyer with the time required to determine if the home buyer is comfortable with his or her loan choice.
If mailed, the TIL disclosure is considered “received” 3 business days after mailing.
A more typical real estate contract (escrow) date may be 30 to 45 days — or possibly longer (such as with a new construction loan). Considering that many things occur and may be changed or finalized throughout the course of the transaction, there are a number of things that can impact the home buyer’s Annual Percentage Rate (APR). Therefore it is critical on the front end to ensure that estimated fees are as accurate as possible.
Some of the items that may impact Pasadena home buyers’ APR are:
- Unlocked rate
- Change in loan amount
- Product change Rate
- Re-lock due to market improvement
- Change in closing date Changes to fees, inclusive of escrow and title fees
If you are considering buying your next home or are under contract, please work closely with your Pasadena Real Estate Agent and Lender to ensure timely closings.
And, lock your interest rate early!
Read More: Pasadena Real Estate Guide
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