Mortgage Disclosure Improvement Act

“How much does it cost?” is typically the first question you ask when you’re buying something. If you’re looking for a home mortgage, your first question should be, “How much will the loan cost?” As of August 1st the Mortgage Disclosure Improvement Act went into effect which theoretically helps a home buyer understand all the expenses associated with their mortgage loan.

Fair enough, but once again our industry seems to have gone to an extreme reminiscent of the overkill of HVCC.

Here’s how MDIA works. After the buyer gets the initial truth-in-lending-statement at application, he or she is given a window of 4-7 days before any mortgage loan services are ordered such as the appraisal or the title insurance. The concept is a good one so home buyers don’t get blind-sided by higher fees at the closing table. It also gives home buyers the opportunity to review all the fine print and make certain they are comfortable with the costs associated with their home mortgage loan.

However, the APR can fluctuate between the time the application is taken and the actual closing date. If this happens, then the very same 4-7 day review window is invoked again. So in the middle of a time-driven process, all forward motion comes to a screeching halt.

Several things can cause the APR to change: the decision to invest more of a down payment or less of a down payment, changing mortgage programs mid-stream, changing the closing date, or the addition of extra fees in the transaction that were not known at application.

On the bright side, it does stop lenders from “under-disclosing” at the giddy-up just so they can get the borrower to sign. And of course it does promote the practice of providing a solid good faith estimate and puts an end to a bare bones fee disclosure.

So while the concept is a positive one, the means to this end are going to cause a whole new category of burps that may very well impede home sales for some buyers. Perhaps I exaggerate, we’ll see. But if this is HVCC-Part Deux, then we’d better strap ourselves in.

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