Newsletter
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August 5, 2009
What is happening to the mortgage process?
On my website under “market trends” you will find the current market reports from the Western North Carolina MLS board and from PMI (has national data). The current press has been indicating that the housing slump may be stabilizing or even slightly recovering. However, the slump is far from over. Although sales have picked up, the number of homes in inventory has actually increased and the unemployment rate in WNC is also increasing. Economists say that the unemployment rate will peak in the first quarter of 2010. Rising inventory and unemployment contribute to PMI’s assessment that Asheville is now a “high” risk for declining home values. However, home values are declining at a lower rate and may be stabilizing. The key point here is that home values are not increasing. Homes appear to be selling at 2006/2007 prices in the Asheville area.
Now if you are a seller and are fortunate enough to find a buyer or a buyer who has found their home, the government has made it more complicated to actually get a loan by altering the way lenders do business.
Two individual pieces of legislation impacting our business need to be taken into account when determining closing dates for purchase transactions.
Home Valuation Code of Conduct – The Home Valuation Code of Conduct (HVCC) went into effect May 1, 2009. Intended to shield appraisers from undue influence from loan officers and lenders, this legislation installed a "firewall" between those individuals directly involved in the origination of the loan from the selection of and contact with appraisers.
HVCC also requires that borrowers receive a copy of the appraisal a minimum of three days in advance of closing. Part of the kicker here is that "received" is considered, in effect, three business days after the appraisal has been mailed to the borrower. As HVCC requires a firewall between the originator and the appraiser, the time to receive an appraisal has increased, in some cases by as much as two weeks or more.
Housing and Economic Recovery Act – The Housing and Economic Recovery Act (HERA) amends and impacts several aspects of obtaining a mortgage, the disclosures required for borrowers, and the timing of their delivery. This impacts the minimum time required to close, and should any changes be made to a loan application that could impact the Annual Percentage Rate (APR), this could impact the closing date.
Other than paying for a credit report, lenders may not accept any additional fees from a borrower until four business days after disclosures have been provided to or mailed to a borrower. This has the potential to delay several aspects of the application process.
Finally, upon making application, a borrower is provided a Truth in Lending (TIL) statement, detailing the total expected costs that could be incurred over the life of the loan. Should anything change in the loan application that could change the APR by more than .125%, a new TIL must be reissued to the borrower a minimum of 3 business days before closing. Items impacting the APR could include a borrower accepting a higher interest rate than initially qualified by floating their rate at application, a change to the loan amount, a change in product, a change in closing date, and any changes to fees.
Bottom Line: Today, conservative closing dates are mandatory to properly manage expectations of all parties. Consequently, we are now allowing 40-45 days to close on a house. It is still possible to close in 30 days, but it is no longer the “norm”.
