MDIA - Mortgage Disclosure Improvement Act…What does this mean to you?

The MDIA (Mortgage Disclosure Improvement Act) is a brand-new regulation that is on the minds of all mortgage professionals, but what does it mean to consumers?

Below are the four main changes:

Collection of Fees: The only fee that can be charged to the borrower prior to the loan application is a credit report fee. This fee must be reasonable, which is usually between $12-35 dollars depending on the company and whether the report is for a single borrower or joint.
New Business Day Definition: Saturdays are now included as business days on all regulations. If you see any paperwork that discusses timelines for a mortgage, Saturdays are included. Sundays and federal holidays are excluded.
Timing of Disclosure: the law has always required disclosures within 3 days of the application. The new added regulation is that the client cannot close within 7 days of the application. This gives the client time to review the loan terms offered to them
APR (Annual Percentage Rate) Change: If the APR increases by more than .125% since the last disclosure, the borrower must be re-disclosed and cannot close for 3 days from last disclosure.

Why were these changes made?

The regulations for collecting fees were made to protect borrowers from paying excessive fees prior to receiving loan terms or disclosure. Lenders have to pay for the credit report, so regulations have been made where the upfront costs are limited to only the credit report. So be prepared to pay this when you apply, but nothing more.
There are now two extra restrictions regarding when you can close. It is now prohibited to close within 7 days of when the borrower was initially disclosed. This gives the borrower time to review the initial disclosures and ensure they are getting the proper loan for their needs. It is also required that the borrower be disclosed no later than 3 days prior to closing if the APR changes by .125% or more. The APR is a calculation of your finance charges which include the interest you pay on your loan and some of your closing costs called Prepaid Finance Charges (PFC’s). So if your rate and/or fees go up too much, you must be re-disclosed and given 3 days prior to signing.
Adding Saturday as a business day helps keep the loan on track to close. Since the two extra restrictions given above can delay a closing, they have included Saturdays as a business day. If you receive disclosures just prior to a weekend, it is now your responsibility to make time to review the disclosures on Saturday.

That all sounds good. Should I be worried?

Yes! Ultimately, all these changes are good for the borrowers. However, if you or your real estate professionals are not prepared for these changes, some major issues may arise during your closing.
Obviously, nobody wants to pay a higher rate or fees than they were quoted, nor should they. However, if you’re at the end of a purchase transaction with a large amount of earnest money on the line, you may have more at risk than the extra costs associated with a higher APR.
Let’s suppose you are first-time home buyer and have found the right home. You make the offer and it’s accepted at $100,000. You plan on getting a FHA loan and your disclosed at a rate of 5% and an APR of 5.709%. However, your lender forgets to include the FHA Upfront Mortgage Insurance Premium in the APR calculation as a Prepaid Finance Charge. Your lender is responsible for disclosing all of the fees properly, including “Prepaid Finances Charges.” It should include this premium, which would result in an APR of 5.879%, more than .125% higher than last disclosed. The mistake is caught 2 days before closing, and with these new rules in place, you must be re-disclosed and wait 3 more days before you can sign! This puts you in a position where you might breach the terms of the contract, potentially causing you to lose your earnest money and more important, lose the house.

Okay, I’m worried! What should I do to prevent this?

Below is a list of items you can do to help prevent any mishaps.

• Schedule to have a longer closing. This may become th industry standard for some time while everybody becomes accustomed to the changes. Plan for a few extra days between loan documentation getting to escrow and the scheduled signing.

• Become familiar with the fees that affect the APR (Prepaid Finance Charges). There is a list of fees that affect your APR at the bottom of this blog for your reference. There can be other fees as well, so be sure to talk to your loan officer about this. Your Good Faith Estimate will indicate whether a fee is being calculated as a Prepaid Finance Charge. If you notice that some fees are not marked that should be marked, contact your lender immediately and have them re-disclose the papers properly.

• Watch your interest rate. Almost any change to your interest rate will trigger an APR change of more than .125% which would then require an new re-disclosure

• Become familiar with the Prepaid Finance Charges that will change prior to closing. Two Prepaid Finance Charges almost always differ from the initial estimate to final disclosure.

1. Escrow Fee - This fee is charged by the escrow company. On a purchase, you may pick the escrow company and become familiar with their fees prior to finding a home. Often the real estate agents or seller will suggest using a company they trust. Be sure to get their fees early and have them properly documented on the most recent set of disclosures sent to you.
2. Interest Per Day - This is an interest charge covering all of the days remaining in the month you close. If you close early in the month, the charge will be higher. If you close late in the month, the charge is lower. If you’re set to close at the beginning of the month but your Good Faith Estimate only shows 15 days of interest or less, ask your lender to add more days to this charge and re-disclose. Guidelines require that the lender use at least 15 days when no closing date is picked. However, if you’re scheduled to close at the end of the month and the contract is extended to the beginning of the following month, ask your lender to re-disclose with the updated, corrected amount.

Hopefully your lender and real estate agent are on top of this, but don’t be so sure. Review your disclosures early and don’t be afraid to question your lender and real estate agent if you identify any incorrect numbers that could delay your closing.
List of Fees that affect Annual Percentage Rate (Others may apply)

- Origination Fee/Points
- Discount Fee/ Discount Points
- Tax Service Fee
- Table Funding Fee
- Underwriting Fee
- Administrative/Admin Fee
- Processing Fee
- Courier Fee
- Loan Doc Drawing Fee
- Mortgage Insurance Premium
- Upfront Mortgage Insurance Premium
- Application Fee
- Commitment Fee
- Escrow/Closing Agent/Closing Attorney Fee
- Sub-Escrow Fee
- Wire Transfer Fee

- VA Funding Fee

Reality Check for Brokers, Bankers and anyone Originating in Texas

Don't be fooled into thinking that licensing for mortgage banking "might or might not" happen.

President Bush signed the law July, 2008, and Doug Foster, TDSML Commissioner, posted a notice about it the same month. Since then there have been numerous postings and updates on the TDSML website;

http://www.sml.state.tx.us/tdsml_important_information.html#safe_nmlsr

Here is a summary of the timeline for the postings and note that those loan originators that don't have a mortgage broker or loan officer's license will have to comply in April or May, 2010:

April 1 - May 31, 2010 All Mortgage Banker Companies; Financial Services Companies; Credit Union Subsidiary Organizations; State Agencies and Non-profits Engaged in Residential Mortgage Loan Origination; Contracted Processors and Underwriters; and Contracted Residential Mortgage Loan Originators Working for Commercial Banks Submit Licensing/Registration Application (MU1/MU2/MU3) on the NMLSR

All Residential Mortgage Loan Originators (RMLOs) Employed or Contracted by Mortgage Banker Companies; Financial Services Companies; Credit Union Subsidiary Organizations; and State Agencies and Non-profits Engaged in Residential Mortgage Loan Origination; and Independently Contracted Processors and Underwriters and Residential Mortgage Loan Originators Working for Commercial Banks Submit Licensing Application (MU4) on the NMLSR

July 1 – August 31, 2010 All Currently Licensed Mortgage Broker Entities Submit Application (MU1/MU2/MU3) on the NMLSR.

All Currently Licensed Individual Mortgage Brokers and Loan Officers Submit Application (MU4) on the NMLSR

The complete posting for this timeline is available at:

http://www.sml.state.tx.us/publications/important_information/NMLSR_Transition_Timeline_6_24_2009.pdf

Ask good questions and get REAL answers so you can make good decisions about for you and your family. Those of you who haven't got on the bus and started your CE credits are behind and have alotof classroom time ahead of you. To get up to speed you can hit up Marie Murry with Apex Training Group and get in her licensing CE classes. I have almost all of my training done so I am doing good.

Can a Real Estate Agent Become a Mortgage Banker/Broker?

So today I got a question about whether a Real Estate Agent can be a Loan Officer so here are some answers to help you.

While the addition of mortgage brokerage services to a real estate broker’s practice may produce additional income, there are a number of legal issues raised by such a business combination.

The questions and answers below, which are largely taken from the Texas Savings and Loan Department’s Web site (http://www.sml.state.tx.us/), address some of the issues raised concerning obtaining a mortgage broker license.

Q How do I become a mortgage broker?

A Anyone engaging the business of brokering mortgages in Texas must be licensed by the Texas Savings and Loan Department. The process involves filing an application and paying the application fee. There are experience and education requirements to be licensed as either a mortgage broker or a loan officer. Applicants must meet minimum financial requirements and post a surety bond. There is no examination.

Q Can i originate an FHA secured loan if I am a Licensed Real Estate Agent?

A The answer is "NO" a Realtor can not originate FHA loans.
The answer is found in the HUD Handbook 4060.1 Title II Mortgagee Approval Chapter 2
"and excerpt from said manual"
G. Full Time, Part Time and Outside Employment. A mortgagee may employ staff full time or part time (less than the normal 40 hour work week). They may have other employment including self employment. However, such outside employment may not be in mortgage lending, real estate, or a related field. Direct endorsement underwriters are included in this provision. An underwriter may not work on a part time basis for any other mortgagee, even underwriting conventional mortgage loans. An underwriter may not underwrite loans for a parent or subsidiary of the underwriter’s approved employer. A direct endorsement underwriter’s authority is through the employer and does not extend under any corporate “umbrella.”

Q I am a real estate salesperson. Am I exempt from the Mortgage Broker License Act?

A No. Real estate brokers and salespersons are not exempt from the act. A real estate broker’s license qualifies for the experience requirement under the act and would enable real estate brokers to qualify for a license. But if you are brokering first-lien mortgage loans, you must apply for and establish that you meet all of the criteria for a mortgage broker license. A real estate sales license does not meet the experience requirement for a mortgage broker license under the statute.

Furthermore, if you are not currently licensed as an active real estate broker in Texas (e.g., you are licensed in another state or, although licensed in Texas, your license has lapsed), you would not meet the requirements for a mortgage broker license.

Q I work for a company that closes loans in its own name. Is it exempt?

A Not necessarily. The act exempts employees of a mortgage banker and defines a mortgage banker as a HUD-approved lender with direct endorsement authority, a FNMA or FHLMC seller/servicer, or a GNMA issuer. Whether a company closes loans in its own name is not an issue.

The act also distinguishes persons who are employees from those who are independent contractors. Employees are persons who receive W-2s. Those who receive a 1099 are not employees but rather are independent contractors or other agents.

Finally, in order to be exempt from the act, such employees must be acting for the benefit of their employers. So persons who moonlight and broker loans on the side to companies other than their primary employer would be required to obtain a mortgage broker license.

Q I am a mortgage broker, and a real estate agent wants to come and work for me as a loan officer. Can they be a loan officer and a real estate agent on the same transaction?

A The law does not preclude a person from serving as a mortgage broker or loan officer and a real estate agent on the same transaction. However, the Mortgage Broker License Act requires that the mortgage broker or loan officer provide a written disclosure to the client in advance and obtain the client’s written consent. The Texas Savings and Loan Department makes available on its Web site a form for making this disclosure.

Q What do I need to do to be in compliance when I advertise?

A There are a number of very specific requirements in the Mortgage Broker License Act. You need to disclose that a mortgage broker or loan officer is running the ad. An easy way to do this is to place your license number in the ad. False, misleading, or deceptive advertisements are prohibited. You may advertise only products that are actually available, and if they are subject to any special or unusual conditions or requirements, those conditions and requirements must be disclosed.

You must comply with all other applicable consumer disclosure laws, including the Truth in Lending Act and Regulations. One of the most common violations is the failure to disclose APRs. If you are disclosing a rate, you must show it as an annual percentage rate or APR calculated in accordance with Regulation Z.

Q I am a real estate agent. I take loan applications and I get paid for it. Do I need to be licensed?

A Under the regulations implementing the Mortgage Broker License Act, there is a three-part test to determine whether you must be licensed. First, are you taking the application? Second, are you deciding where the loan application is being sent? Third, are you being compensated for your role with respect to the loan? If the answer is yes to all of these questions, you must be licensed as a mortgage broker or loan officer.

Q Where can I find the actual Website with the Mortgage Broker License Act for me to read?

A To read this important document that is required in obtaining your Mortgage broker License go to Here.

For additional questions and answers, see the Mortgage Broker Licensing FAQs on the Texas Savings and Loan Department Web site, http://www.sml.state.tx.us/.

I will keep adding to the Q & A as I find more answers.

Mortgage News for July 6th 2009

I hope everyone had a great Independence Day and had a safe 4th of July. Monday's bond market has closed in negative territory despite a day of ups and downs. The stock markets are starting the week with minor losses as concerns over this week's events prevent gains in the major indexes. The Dow closed up 44 points while the Nasdaq lost 9 points. The bond market closed down 28/32, which should push tomorrow morning's mortgage rates lower by approximately .125-.25 of a discount point over Monday's morning rates.

This week brings us the release of only two monthly economic reports and they both will be posted this Friday. It also is the beginning of corporate earnings season that can lead to significant volatility in the stock markets and has the potential to influence bond trading and mortgage rates. So far this year it has been a mixed bag with corporate earnings with some companies showing a higher than expected gain or a better outlook on the losses.

There are a couple of Treasury auctions that are scheduled to take place this week, with some that took place today. This sale isn't exactly the most important auction of the week, but with no relevant data being posted until later in the week it may influence bonds and possibly mortgage rates if we see a very strong or extremely poor demand from investors. So don't go burying your savings in the backyard quite yet.
President Obama has announced that he will need to reappoint Ben Bernanke the current Fed Chief or appoint a new head of the department. All the analysts predict that President Obama will keep Bernanke in place in order to keep on his plan of economic restructure.

Overall, we are expecting to see a very active week in mortgage rates. So far no day in particular will be the most important of the week. Friday is the easy candidate with two monthly reports scheduled to be posted, but neither is considered to be a major release. Wednesday is also a possibility due to the 10-year Note auction and the opening act of earnings season. I suspect that we may see some pressure in bonds the first part of the week unless the major stock indexes continue Thursday's selling.

NEW Changes to Truth In Lending Act MUST READ!!!

Summary Effective for applications taken on or after July 30, 2009, the Federal Reserve Board

and Legal (“FRB”) adopts the final rule amending Regulation Z, 12 C.F.R. §§226.1 et seq. ("REG

Reference: Z"), which implements the Truth in Lending Act, 15 U.S.C. §§1601 et seq. ("TILA") and the Home Ownership and Equity Protection Act of 1994, 15 U.S.C. §§1639 et seq. Public Law 103-25 ("HOEPA").

The final rules revise the disclosure requirements for mortgage loans under REG Z. The intention is to ensure that consumers receive cost disclosures earlier in the mortgage process. The revisions to REG Z implement the Mortgage Disclosure Improvement Act (“MDIA”). On July 30, 2008, the MDIA was signed into law as part of the Housing and Economic Recovery Act of 2008 (“Public Law 110-289”).

Changes: The key changes to TILA effective in July are listed below:

· TILA disclosures are now required on all dwelling-secured, closed-end mortgage loans and applications. Previously, only certain transactions required these disclosures.

· There is a new statement that must be provided with the early TIL: “"You are not required to complete this agreement merely because you have received these disclosures or signed a loan application."

· The “early” TILA disclosures must be delivered or placed in the mail not later than 3 business days after the creditor receives the consumer's written application, and at least 7 business days before consummation of the transaction. This is a new “waiting period.”

o For the above purpose “business days” include each day (other than Saturday or Sunday) when the head office is open to the public for carrying on substantially all our business functions.

· If the annual percentage rate (“APR”) on the “early” disclosure becomes inaccurate, by increasing or decreasing beyond established tolerance levels, the creditor must now make corrected disclosures to the consumer with a revised APR. The consumer must receive the corrected disclosures no later than 3 business days before consummation.

o The APR is considered accurate for a regular transaction if it is not more than 1/8 of 1 percentage point above or below the actual annual percentage rate.

o The APR is considered accurate for an irregular transaction if it is not more than 1/4 of 1 percentage point above or below the actual annual percentage rate

o For this purpose, the definition of business day is the “rescission” standard for business day, which includes all calendar days except Sunday and legal public holidays.

· Except for a reasonable fee for a credit report, no other fees may be collected before the consumer has received the “early” disclosure.

o If the creditor mails the disclosures, the creditor may assume the consumer has received the disclosures after midnight on the third business day following mailing of the disclosures.

o For this purpose, the definition of business day is the “rescission” standard for business day, which includes all calendar days except Sunday and legal public holidays

Mortgage News for Tuesday June 30th 2009

Tuesday's bond market has opened in negative territory despite early stock losses and weaker than expected economic data. The stock markets are in selling mode after digesting this morning's economic news with the Dow down 116 points and the Nasdaq down 14 points. The bond market is currently down 7/32, which will likely push this morning's mortgage rates higher by approximately .125 - .250 of a point.

The Conference Board gave us today's only relevant economic data when they posted June's Consumer Confidence Index (CCI) late this morning. They reported a reading of 49.3 that was well below forecasts of 55.1. This means that consumers were much less optimistic about their own financial situations than many had thought. This is actually supposed to be good news for the bond market and mortgage rates since it indicates consumers are less apt to make large purchases in the near future. Unfortunately for mortgage shoppers, bond traders seem to have forgotten that this morning.

The Institute of Supply Management (ISM) will release their manufacturing index for June late tomorrow morning. This index measures manufacturer sentiment by surveying trade executives on current business conditions. A reading below 50 means that more surveyed executives felt business worsened in the month than those who felt it had improved. Analysts are expecting a reading of 44.0. That would indicate that manufacturers felt business improved slightly from the previous month. Good news for bonds and mortgage rates would be a weaker than expected reading.

Thursday brings us the release of two monthly reports, one being the extremely important Employment report. The other, May's Factory Order's data will likely have little impact on the financial markets or mortgage rates as most of the attention will be directed towards the employment figures.

The financial markets will be closed Friday in observance of the Independence Day holiday, but there will be no early close for the bond market Thursday as has been the case previous years. However, it will still probably be a light afternoon in trading as traders head home for the long weekend. This could magnify the reaction the markets will have to the morning's data.

New DPA from TDHCA

It has been released that we can now do DPA through the TDHCA at America Home Key. I have included the following information from the TDHCA website telling exactly what the program is and you can click on the picture to the left for more info.

Down Payment Assistance Programs

The Texas Department of Housing and Community Affairs (TDHCA) is pleased to announce the release of 2 new down payment assistance programs - the Mortgage Advantage Program and the 90-Day Down Payment Assistance Program. Both programs are designed to monetize the Federal First Time Homebuyer Tax Credit enacted within the American Recovery and Reinvestment Act of 2009 by helping Texas families take advantage of the opportunity made available by recent Congressional action.

Under the Mortgage Advantage Program, TDHCA has made available on a first come, first serve basis to participating mortgage lenders approximately $1 million in down payment assistance for use in conjunction with the 2009 Texas Mortgage Credit Program and approximately $1.5 million in down payment assistance for use in conjunction with The Texas First Time Homebuyer Program (Bond 70). The first lien interest rate for Program 70 will remain at 5.75%.

Under the 90-Day Down Payment Assistance Program, TDHCA has made available $5 million in down payment assistance to be used in conjunction with first lien mortgage loans originated by the lender.

• Program guidelines and additional information (PDF)
• Please refer to the First Time Homebuyer Participating Lender List (PDF) and/or the Texas Mortgage Credit Program Participating Lender List (PDF) to find lenders who also participate in the Mortgage Advantage Program.
• 90-Day Down-Payment Assistance Program Participating Lender Contact List (PDF)
• For lender documentation please visit the Homeownership Programs Lender Documentation page.

For current available program funds please visit the Available Funds page.