HERA/HOEPA - Background Information
In 2008, the Home Ownership and Equity Protection Act (HOEPA) and the Housing
and Economic Recovery Act (HERA) were passed by Congress, and the Federal
Reserve Board published the regulations under the Truth in Lending Act. These
regulations were written to provide 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.
HOEPA - Effective July 30, 2009
Amends the Truth in Lending Act (TIL), implemented through Regulation
Z. Has a number of provisions including the Mortgage Disclosure
Improvement Act, which changes the Truth in Lending Act requirements
surrounding early and final disclosures to home buyers and addresses the timing
of when fees can be charged.
Four key elements you need to know
1. If the home buyer is financing the property, these new regulatory
and investor guidelines will impact-and could even dictate-the closing
date.
Historically, home buyers and sellers would agree on a closing date, and
then service providers - including lenders - would work as best they could
toward meeting that date. Going forward, purchase contracts can still be
written with a specific closing date in mind, but all parties need to take into
account that the earliest any home purchase transaction can close is 7
business days after the
home buyer is issued his or her initial mortgage disclosures from the
lender. If the application is taken by phone - and everything went perfectly,
the earliest closing date would be 7 business days after application. (Note: At
Wells Fargo Home Mortgage, Saturdays, with the exception of federal holidays,
do count as a business day for the purpose of disclosures only.)
2. Upfront fees cannot be collected by the lender (except for a
credit report fee) until the initial disclosures are received. If the
disclosures are overnighted, they are considered "received" the next
business day-allowing the fees to be collected on the following business day.
Historically, upfront fees could be collected immediately. Starting July 30,
2009, upfront fees can be collected immediately when the application is taken
in person and the home buyer receives his or her initial disclosures. The only
exception is the credit report fee which can be collected at application.
3. The homebuyer must be provided with a copy of his or her
appraisal a minimum of 3 business days prior
to closing.
To help expedite the process, Wells Fargo Home Mortgage has elected to have
a copy of the appraisal issued directly to the homebuyer - and the homebuyer
must receive the appraisal at least 3 business days prior to the mortgage closing. This means
the homebuyer may receive his or her appraisal before or simultaneous to the
lender receiving their copy. If the homebuyer believes the 3-business-day
required review period is not necessary for whatever reason, he or she has the
right to waive that requirement.
4. An increase of more than .125% in the Annual Percentage Rate
(APR) from the initial Truth in Lending Disclosure (TIL) requires the TIL
disclosure to be revised and reissued to the homebuyer. The home buyer
must receive a revised TIL disclosure at least 3 business days before closing,
providing the homebuyer with the time required to determine if the homebuyer is
comfortable with his or her loan choice. If mailed, the TIL disclosure is
considered "received" 3 business days after mailing.
Considering that many things occur and may be changed or finalized
throughout the course of the transaction, there are a number of things that can
impact the homebuyer’s APR. Therefore it is critical on the front end to
ensure that estimated fees are as accurate as possible.
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