There are some new guidelines that are being implemented by the Federal Reserve starting July 30th, 2009 as reported in The Washington Post over the weekend. Any agent who sells homes (listing agents, pay attention) better get familiar with them or your deals may get delayed at a moments notice, or learn the hard way that buyers believe they can walk away at any time.
The idea behind the new guidelines is to protect consumers from last minute “junk-fees” that can materialize at closing. Junk-fees are a common complaint heard by regulators. The protections require lenders to provide consumers with more accurate truth-in-lending estimates, and give consumers a seven day cooling-off period to digest the information or any future changes… so they can pull the plug if necessary.
- Requires lenders to give applicants the initial disclosures of mortgage costs (truth-in-lending statements) within three business days of loan application.
- Applicants then have a required seven-day waiting period to review loan documents before closing (so no more last-minute mortgage deals).
- Lenders may only collect reasonable credit-check fees at loan application.
- Requires lenders to provide a copy of the appraisal to the applicant three business days before closing.
- Closings will then depend on the applicant getting the appraisal, except if the applicant waives that requirement.
- If the applicant has not locked-in a rate and rates go up more than 0.125%, then the lender is required to provide a corrected version of the estimate to the applicant. A new seven day waiting period begins before a closing takes place.
These changes may greatly impact the ability to close a loan or real estate transaction because the additional time periods or contingencies can change the closing date.
Real estate contracts bind buyers and sellers and typically have contingency periods covering many things including financing. With a real estate contract, buyers place money at risk, known as an Earnest Money Deposit, to assure the sellers that they aren’t going to default on the contract. Buyers in Northern Virginia may remove the financing contingency which puts the EMD at further risk, but I foresee future problems when the buyer has removed the financing contingency but the lender does not deliver the appraisal on-time.
When I meet with clients, I always mention that one of my roles as their agent is to help manage the transaction making sure that all parties have the paperwork that they need to complete the transaction. Yes, these new Federal Reserve guidelines are going to force mortgage lenders to be more resposible… but they will create another layer of phone calls and paperwork to ensure the sale is closing on the date specified in the ratified contract.