Hang on the interest rate are on the move

Are we going on another wild ride? As the gas prices climb and so goes the interest rates on home loans. I have been working with buyers telling them that this interest rate would not last. Well guess what it has come true.

Big changes are on the way in the mortage industry:

"Where to start? Well lets start with the good news. Three day rescission for purchases is not part of HERA-HOEPA. There are RESPA changes coming down the pike (Sept?) but for the time being no rescission. We will take the small blessings.

Before getting into how our world is going to change I want to touch on the rising rates. Yes we could be at +6% very soon. We need to remember that 7% is historically a good rate. We have just gotten spoiled by the best rate rally in history. The Feds have stopped buying the low end of the MBS stack. The big question is why. Are they done subsidizing the mortgage market? (they still have $717b left of the $1.25 trillion they have set aside to buy MBS) Are they afraid inflation is about ready rear its ugly head? (12-20 months down the road) Are they waiting for the implementation of the next phase of the HARP program? Do they need the money elsewhere? The Feds are not saying so we will have to wait to see if the rally is truly over. The good news for purchase business is that the rise in rates will allow lenders to catch up their pipelines. Great that means quicker turn times you say. Not so fast young grasshopper HERA-HOEPA is coming.

What is this HERA-HOEPA? It is Bush era legislation passed in the beginning of the subprime crisis design to provide additional disclosures, waiting periods and protections to consumers which in theory is a good thing. (we are the government and we are here to help) It becomes law on July 30 for all lenders including brokers and covers all closed-end loans secured by real estate. Wells will be implementing/practicing the new procedures starting June 20th so that we can work out some of the bugs before the hard date of July 30th when a violation of HERA-HOEPA is a $10,000 fine. There are a series of disclosures that must be given to the customer along with several waiting periods with various trigger. In theory under HERA-HOEPA you could close a soon as 9 business days after initial application (I know the law says 8 days but this is government counting we are talking about where the first day is day 0). When combined with the new HVCC rules (which among other things prohibits contact with appraisers) realistically a 30 turn time would happen only if your stars are lined up. Going forward I would not be writing up offers with less than a 45 day turn.

One of the provisions of HERA-HOEPA is that any change to the APR within 5 days of closing of more than a 1/8 will require re-disclosure of a new TIL and trigger a new 4 day waiting period. Fees can not be collected until a week and a day after receipt of initial application in most cases. This will means that loans will not be locked or appraisals ordered until the 8th day after application. Appraisals will need to be sent to borrowers at least three days prior to closing. If a customer decides to make a change in their loan within 10 days of close, chances are the closing will be delayed.

In short, there are several triggers that will be outside either the loan officer's or the agent's control which could push back a closing date. This will be our new world that we will be operating in. We need to start education our customers and setting proper expectations. This will be a learning process for us all as we work through this." Craig A. Kramer

This is the email I received from one of my lenders. You can see how things are changing. So be perpared to understand more about getting a home loan.