Mortgage Disclosure Improvement Act: How Does it Help Home Buyers?

Written by on September 14, 2009

Since July 30th, you’ve heard rumors of the Mortgage Disclosure Improvement Act (MDIA). Some people applaud the new act, others think it will negatively affect the mortgage approval process and add additional time to an already delayed process. It’s true, there are many pros and cons to the new legislation, but if you deal with a trustworthy lender and ask the right questions, the benefits are all on the home purchase side.

So, what is the Mortgage Disclosure Improvement Act? Basically, the federal government has put forth a legislation that replaces the 3-day waiting period for initial disclosure with a 7-day waiting period that does not include Sundays or holidays.

Also, before the borrower can close on a transaction, they must receive the initial Good Faith Estimate (GFE), and the initial Truth in Lending (TIL) statements quoting the final Annual Percentage Rate (APR) seven days prior to closing. Lenders cannot collect fees for appraisals, loan applications or other services until the buyer accepts the transaction. If the APR fluctuates by more than 1/8th (.125%) in increase or decrease before the 7-day period is over, the process must start all over again.

How does the MDIA help home buyers?

  1. You have plenty of time to check over the documents and ensure your mortgage rate matches your initial quote. This is especially helpful if you find you are charged more than the original estimate, perhaps because the title company had to do additional research on the sale property. For instance, a closing fee item estimated at $250 could end up costing you $500. With this new rule in place, you have time to find money to cover any difference in your fees.
  2. Fluctuations in the APR could let you to lock into a better rate. An annual percentage rate on a mortgage depends on several factors, including the size of the loan, prepaid finance charges, such as origination fee and attorney’s fees, and if you are required to purchase private mortgage insurance. If any of these charges fluctuate beyond 1/8th of a percentage either way, you can get a new estimate and potentially save money. This means every time the APR increases or decreases beyond the .125% point, the process must stop and begin again giving you another 7 days to accept the new transaction.
  3. Additional closing fees are not payable until the transaction is accepted. Within three days of receiving a mortgage-loan application and before any fees are levied — beyond the fee to obtain a creditor report — creditors must provide a solid estimate of mortgage-loan costs. Before July 31st, banks could collect origination fees, property appraisal and application fees, etc, at any time. You could spend a considerable amount of money with one lender whose loan offer you decided to decline. No fees, other than a credit report fee, can be charged prior to the initial TIL disclosure being provided.

Still confused about how the MDIA will affect you?

If you have any questions, or would like to speak to a trusted lender, contact Shandrow Group, and we’ll do our best to answer your questions or put you in touch with someone who can.

Best,
Your trusted connection to the Southern California foreclosures and short sales markets,

Sincerely,

Mark Shandrow
Real Estate Broker
ShandrowGroup.com