New Financing Rules:HERA, HOEPA, HVCC

In 2008 the Congress, Fannie Mae and Freddie Mac put in place new sets of rules that affect home buyers and timelines for closing a home purchase. Buyers and sellers need to be aware of the provisions in these rules, so they can expect what will now be a reasonable time line and charging of fees. The goal of the efforts is to "provide a more transparent, level and fair regulation of the real estate industry; to add additional steps to help prevent deceptive lending practices; and to protect consumers by making them more informed--and therefore more confident--in their home financing choices."

HERA amends the Truth In Lending Act setting early and final receipt of the Truth In Lending disclosure part of the timeline for closing. It requires a 7 day review of initial mortgage disclosures before closing. Lenders must also provide a final Truth In Lending Disclosure to the homebuyer if the Annual Percentage Rate (APR) increases by more <0.125% at least 3 days prior to closing. Floating the interest rate on a loan can change the APR, so loan rate locks will be needed 10 days prior to closing. If this document is mailed by USPS, it is deemed received in three mail days (Mon-Sat). HERA also modifies when certain fees can be charged to homebuyers. The credit report fee may be collected by the lender up at first meeting. The appraisal fee may only be collected after the initial loan disclosures are received by the homebuyer. HERA is effective tomorrow, June 30, 2009.

HOEPA is the Home Ownership and Equity Protection Act.

HVCC is the Home Valuation Code of Conduct designed by Fannie Mae and Freddie Mac to shield appraisers from undue influence and require buyers get a copy of their appraisal no less than 3 days prior to closing the loan for the new home. A lender must now request the appraiser from an appraiser clearing house, cutting out direct communication between the lender and the appraiser. This middle man raises the cost of the appraisal, often increases the amount of time it takes for the appraisal to be completed, and makes it very difficult to question the appraiser's valuation. Further, either for quality control checks or if an appraisal is questioned, a second appraisal must be ordered. (This costs the homebuyer an additional appraisal fee.) The homebuyer must be provided with a copy of the appraisal at least 3 business days (Mon-Fri) prior to closing. HVCC went into effect May 1, 2009.

All together, the quickest a home purchase using a loan can close is 7 business days after having an accepted, executed offer. For most home purchases the appraisal fees will be more expensive and a standard closing will take a little longer--from a whole month to two months. (Remember FHA and VA loans close at the end of the month.)