Friday, July 31, 2009

The Government "Helps" Again...

Yesterday, July 30, marked the beginning of the HERA laws. HERA effects banks and brokers by making sure that rates and fees are disclosed in a timely manner. If the rate and fees change enough to effect the annual percentage rate (APR) by more than .125%, then new disclosures must be sent out. There are to be no fees collected (except a credit report fee) until the initial disclosures have been sent and a waiting period has elapsed.
It sounds so simple and it looks like it makes sense, but in essence between the new HERA laws and the new HVCC appraisal systems a once 30 day escrow may take upwards of 60 days. The current Truth-in-lending laws and RESPA laws required that interest rates and fees be disclosed within three days of application (an application is not complete until a property has been identified-in contract). Usually when this initial disclosure goes out, the rate has not been locked, the escrow company has not yet sent fees, for brokers; a lender may not have been selected yet. So it is very typical for numbers to change.
Here is what happens under the new law. An application is taken and we will assume for this example that a property is in contract. The broker or banker will then register the loan. Initial disclosures of proposed rate and fees will be sent via email or snail mail to the borrower. If done by email, the broker/lender can order the appraisal on the fourth day after receipt of the disclosure. If you don't have email, there is a three day send a three day receipt time, the appraisal cannot be ordered until day 7. Assuming this is a non-government loan, the appraisal can now be ordered. The client will need to provide a credit card as these companies do not allow you to bill escrow for the appraisal. The third party appraisal company then hires an appraiser, the appraiser contacts the agents and clients, an appointment is set and hopefully before 2 weeks have expired you will have your appraisal. Now mind you, if there are any issues on the appraisal, no one is supposed to know until the appraisal is received. Maybe the appraisal comes in $10k less than the contract price, maybe there is dry rot and the appraiser is requiring a pest inspection on an "as is" sale. All issues that can derail the deal. Also, days as counted for disclosures and appraisals do not include Sunday's or holidays for disclosures and appraisals we can't count the weekends or holidays.
Now assuming everything comes back perfect...the loan can be locked (it could have been locked previously, but depending on how quickly the appraisal comes back you may get into an expiring issue, this really comes into effect if the market has worsened since the loan was locked). If everything has stayed exactly the same, the rate is the same, the title and escrow fees are the same, then no more disclosing, the underwriter can underwrite the file, clear for loan documents and the purchase can continue like nothing has changed. But in the volatile market we live in, rates move up or down it doesn't matter. If a change to the APR is more than .125% then a new disclosure has to go out, the same time frame applies, and loan documents cannot be printed until either the fourth or seventh day depending on delivery method. Remember though it is not just rate that effects the APR it is also fees. If the appraisal came in low, the structure of closing cost payment may change (this really doesn't effect credits, it effects when the seller pays certain costs 100% then they are changed to 50% or 0%).
I am not complaining per say about the new laws, I do think they are redundant from what we already had. What I am saying is that in the past two years lending has changed dramatically, especially in the California markets. These laws are going to change it again. Prepare yourself, don't write 30 days escrows until the brokers/lenders have time to get the bugs out. It is much easier to write a 60 day contract and close early, than it is to write a 30 day contract and get extensions. If you have any questions regarding this information, please don't hesitate to call or email me.

Tuesday, July 21, 2009

We are almost to mid-week and the MBS are having a nice rally. Not sure how long it will last, but it is nice to have some positive days in our market. Be aware if you are in the process of making a purchase or refinancing your home, that guidelines are constantly changing. There are little things as borrowers that you can do to make your loan easier. Don't apply for credit. Letters of explanation will have to be written and proof that no additional credit has been extended.
This is just one little way to make your life easier during the loan process.

Monday, July 6, 2009

Happy 4th of July

This weekend flew by. Even though we had 3 days, my family was as busy as ever on the softball and baseball diamonds. The market may be a little volatile this week as some of the traders have taken an extended holiday. The stock market is sluggish and the MBS market is near a tough ceiling of resistance.
There are many decisions being made on the state and federal level that affect our day to day lives without us even realizing it. I think as a community, state and country, we need to be heard better by those we vote into office. It may be time we all sit down and write letters, emails, make phone calls. Decisions are being made in a knee jerk fashion that are going to cost us Trillions of dollars in the long run. Don't be shy, let our elected officials know what we really think about what is going on.