Good news for the local housing market?

The Boston Globe reports today that Massachusetts home sales have continued to increase for the second consecutive month, indicating (in its view) that the housing market is beginning to recover. Do we believe this? Perhaps the power of the press can make it so! Read the complete article at http://www.boston.com/business/articles/2009/09/30/signs_point_to_recovery_in_mass_housing/

More new federal lending regulations

The federal government has been staying busy in its efforts to revamp the mortgage lending industry. In addition to the new regulations previously reported here, an article in today's New York Times explains additional limitations on lenders making high-cost mortgage loans to borrowers who cannot demonstrate a clear ability to repay the loan in the conventional manner. Borrowers with low credit scores or no ability to fully document their income will find it far more difficult to obtain mortgage financing. The full article may be found at http://www.nytimes.com/2009/09/27/realestate/27mort.html?emc=tnt&tntemail1=y.

Significant Changes to Mortgage Lending Disclosure Rules and Their Impact on Your Closing

The Mortgage Disclosure Improvement Act, which affects all residential mortgage loan applications submitted on or after July 30, 2009, imposes substantial additional compliance obligations on the part of mortgage lenders, in an effort to provide more transparency and fairness and to better protect consumers in making choices about mortgage financing. These new regulations are likely to lengthen the time it takes to close a mortgage loan. It is important that all parties involved in a real estate mortgage transaction understand these new regulations and consider their impact on the timing of the process. Following is a summary of the changes and how they may impact you:

1. A lender is now required to provide a good faith estimate of closing costs (GFE) and an initial Truth In Lending Disclosure Statement (TIL) within three business days after receiving a mortgage loan application. The lender may not collect any up-front fees from a borrower, except for a credit report fee, until the initial GFE and TIL are received by the Borrower.

2. No mortgage loan may close less than seven business days after the date on which the borrower is issued the initial GFE and TIL.

3. A home buyer must be provided with a copy of the appraisal not less than three business days prior to closing.

4. If the Final Truth-In-Lending Disclosure form (TIL) indicates an increase of .125% or more in the Annual Percentage Rate from the APR stated in the initial TIL, there is a mandatory 3 day waiting period before the loan can close in order to give the borrower an opportunity to review and agree to the new numbers.

These new regulations have the potential impact of delaying the timing of closing a mortgage loan. The ordering of appraisals may be delayed until the lender is able to collect the appraisal or application fee. A delayed appraisal may result in a longer time between application and when the lender issues a commitment letter and clears a loan to close. All of this means that the closing date set in a purchase and sale agreement between a buyer and seller may no longer be certain, since it is possible that the lender will be required to delay the closing in order to meet these new disclosure and timing requirements. In certain circumstances, these waiting periods may be waived by the borrower if it is determined to be "necessary to meet a bona fide personal financial emergency". It remains to be seen what constitutes "a bona fide personal financial emergency" and whether individual mortgage lenders will permit waivers as a matter of policy.

As a buyer, realtor or buyer’s attorney, you would be well advised to include a clause in your purchase and sale agreement which grants an extension of the stated closing date if required by the mortgage lender in order to satisfy these new regulations. Without that, a buyer might be caught in that no-man’s land between having a contractual obligation to close on a stated date or forfeit a deposit, but not yet having mortgage funds available from the lender. Query whether such a circumstance will qualify as a "bona fide personal financial emergency" which permits a waiver of the notice periods.

New Rules For First Time Home Buyers

When I started this blog, I was told that the first rule of blogging is to keep up with posting so readers stay interested. Somehow, that advice fell to my deaf ears over the summer. I won't try to make any unusual excuses, but instead will just renew my efforts to go back to regular postings, so that my loyal readers will again be kept informed of interesting developments in areas of the law that might affect them.

I will start by encouraging all potential first-time homebuyers to read Ron Lieber's terrific article in the September 11, 2009 issue of the New York Times, "Seven New Rules for the First -Time Home Buyer". Mr. Lieber has excellent advice on this topic in our current economic climate. Check it out at http://www.nytimes.com/2009/09/12/your-money/mortgages/12money.html?_r=1&emc=eta1.