Avoid wrecking your mortgage approval by understanding MDIA and RESPA mandates.

November 07th, 2011

Ensuring you are able to close before your prospective mortgage rate lock expires can be critical, especially if rates are going up. With changing policies and procedures that must be followed by all brokers and lenders, some loan closings may be delayed.

Here are two federal mandates that can impact your transaction--and their potential consequences.

Mortgage Disclosure Improvement Act (MDIA)

The MDIA is a Federal Reserve mandate which specifies tim frames for providing the Truth In Lending (TIL) disclosure to borrowers.

  • Initial TIL Disclosure: The initial TIL (which discloses the proposed loan's APR) must be provided to you at the time of initial application. Until you have received this form, no fees other than for a credit report may be collected.
  • TIL Re-Disclosure: In addition, if at any point during the loan process, the APR on your mortgage changes by one-eighth of one percent (0.125%) or more, a new TIL must be provided at least three business days before closing can occur.

Consequences of MDIA

Since lenders frequently do not order property appraisals until fees are collected, a delay in TIL receipt and/or fee acceptance can cause a delay right from the beginning of your mortgage application.

This can push out your closing if the dates are not properly monitored. A slip-up in when you receive any necessary re-disclosures can add up to six business days or more to your home refinance or purchase loan process--which could cause you to lose a home you want or blow your rate lock.

For example, if your initial TIL shows you have an APR at application of 5.00%, and during the mortgage process the actual costs of your home refinance or purchase cause the APR to be bumped up to 5.175%, then a new TIL must be provided. If this re-disclosed TIL is provided on Tuesday, then the soonest you can close is Friday. If your lender requires three additional days, your closing will be delayed until at least the following Tuesday.

Real Estate Settlement and Procedures Act (RESPA)

There have been updates to RESPA and revisions to the Good Faith Estimate (GFE) used for residential home refinance and purchase transactions.

The latest GFE is meant to disclose fees more effectively and to require redisclosure if some fees change. Other fees are not allowed to vary in excess if specified tolerances, and some cannot change at all. To this end, the new GFE combines costs into one bottom-line figure to make comparing loans easier, and puts the most important features of a loan (for instance, if it's adjustable or has a prepayment penalty) right upfront and not buried in a sea of multiple disclosures.

Consequences of RESPA changes

The new GFE must be used by loan originators, underwriters, funders, and also closing agents. If the GFE is not properly completed or filed, the lender may be required to pay improperly disclosed fees itself instead of passing mistakes along to borrowers.

Beware of worksheets

When shopping for a mortgage, don't accept a "worksheet" or "scenario" in lieu of an official GFE; these forms do not obligate the lender to honor them, nor do they confer the consumer protections of the GFE and TIL disclosures.

Communication is still important

Both of these Federal Acts have a significant impact on the origination, processing, mortgage approval and closing of your mortgage refinance or home purchase. While it has always been true that the best way to ensure a smooth closing is frequent and clear communication with your loan officer, this is even more true today.

Posted By :

Dennis is co-owner and broker of record for Stratis Financial in Southern California. With over twenty years experience in the mortgage industry he has helped thousands families purchase homes. His Weekly Rate and Market Update keeps his clients and real estate professionals educated and informed on the mortgage industry and the economy. from Pitzer College and is married with two children.

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