Housing and Economic Reform Act (H.E.R.A.)

In 2008, the Home Onwership and Equity Protection Act (HOEPA) and the Housing and Economic Recovery Act (HERA) were passed by Congress. The new regulations were written to provide a more transparent, level and fair regulation of the real estate industry with the end result to protect the consumer by making them more informed and more confident in their home financing choices. In 2008 Fannie and Freddie adopted the Home Valuation Code of Conduct (HVCC) to reinforce appraiser independence and enhance the integrity of the evaluation process.
The Mortgage Disclosure Improvement Act, effective July 30, 2009, part of the Housing and Economic Recovery Act (HERA) of 2008, specifies new requirements for the disclosure portion of the loan application and fulfillment process. Highlights of these changes include:
• Collection of Fees: No fees, other than a bona fide and reasonable credit report fee, can be charged prior to the applicant’s receipt of the initial Truth-In-Lending (TIL) disclosure.
• New Business Day Definition: Saturdays are now considered a business day for purposes of disclosure receipt. Business days will include all calendar days except Sundays and federal holidays.
• Timing of Disclosures: Early disclosures must still be provided no later than three business days after receipt of an application. Under the new rule, early disclosures must also be provided at least seven business days before closing/signing.
• Early Disclosure: The initial Truth-in-Lending (TIL) disclosure is required to be provided to the borrower on both purchase and refinance transactions involving a borrower’s principal or secondary dwelling.
• APR Change: If the APR increases by more than 0.125 percentage points from the value last disclosed to the borrower, a corrected Truth in Lending (TIL) disclosure must be furnished to the borrower at least three business days before closing/signing.
• Re-Disclosure Mailing Period: When corrected disclosures are mailed, the borrower is presumed to have received their corrected disclosures three business days after mailing.
• Appraisal Disclosure: Homebuyer must receive the appraisal at least 3 business days prior to the mortgage closing.
This enforces the importance of home buyers to obtain a full credit approval as early as possible during the home buying process so that they are subject only to (a) appraisal, (b) clear title and (c) homeowner’s insurance. It also stresses that any changes in their situation at all could significantly delay “rush” closings because the waiting periods must be enforced. This could also jeopardize locks and borrowers could end up having to pay extra to extend their locked loans.