We’ve heard that Congress passed a number of new laws to protect home loan applicants against unfair and deceptive home-mortgage products and lenders. What are they, and do they really help?
— G.A. Kern, Catalina
Due to the mortgage meltdown initially caused by the sub-prime mortgage crisis, Congress passed a slew of new laws and regulations benefiting home owners and home buyers.
Mortgage lenders have, for some time, been required to provide home loan applicants a full disclosure of mortgage costs, including the Annual Percentage Rate, within three days of applying for a loan.
Lenders are now prohibited from collecting loan and application fees from applicants, with the exception of a reasonable charge for a credit report, until the applicant has received the Truth in Lending disclosures detailing the costs and the APR. After receipt of the disclosures, applicants must wait at least seven days before the home mortgage can be closed.
This period of time is intended to allow them time to think about the transaction they are about to enter. If after that time the buyer goes to closing and the APR disclosed on the loan documents varies by more than .125 percent (1/8 of 1.0 percent), the lender must wait another three business days before closing the loan.
New laws require lenders to deliver a copy of the real estate appraisal three days before the scheduled closing. Previous federal regulations required lenders to give notice to borrowers that they could request a copy of the appraisal; however, lenders and home buyers often did not follow through. It is now a requirement unless specifically waived by the applicant.
The Secure and Fair Enforcement for Mortgage Licensing Act, or SAFE Act, was designed to increased consumer protection and decrease fraud in the mortgage industry. To do this, it introduced new minimum national standards for licensing and registering mortgage loan originators. They now have to pass tests and submit to fingerprinting and background checks by the FBI through the Nationwide Mortgage Licensing System.
The Truth in Lending Act was also amended to change how mortgage brokers are compensated, ostensibly to safeguard consumers from unfair practices involving brokers and loan originators.
There are now many more regulations protecting the consumer and intentionally lengthening the time the process takes in order to eliminate the “quick close” and allow for more thoughtful and deliberate transactions.
Karmin Laramie Lynam is a mortgage loan officer at Commerce Bank of Arizona, a locally owned community bank specializing in serving residents and small to mid-size businesses in Arizona. She may be contacted at email@example.com or 797-6655.