If you're in Real Estate and have a pulse, you've experienced, or at least heard of, the frustrations caused by the HVCC process. Well, just as you started getting used to dealing with HVCC's inefficiencies, along comes MDIA (Mortgage Disclosure Improvement Act, also referred to as HERA), HVCC's slower, meaner sister.

Ok, so before you start drowning in an alphabet soup of government legislation, let's quickly breakdown the legislations' rules, and their impact on the real estate market.

HVCC, Home Valuation Code of Conduct (effective May 1, 2009):

Promotes the accuracy of appraisals by shielding appraisers from undue influence and ensuring consumers have sufficient notice of appraisal content by requiring consumers receive a copy of their appraisal report no less than 3 days prior to the closing of their loan, absent a consumer waiver of this requirement.

Impacts

Although this legislation is great in theory, its stringent (an in my opinion irrational) rules makes implementation is inefficient at best. HVCC has caused significant delays in closings, and kills sales altogether by not offering a reasonable dispute process for correcting inaccurate appraisals.

MDIA, Mortgage Disclosure Improvement Act (effective July 30, 2009):

Amends the Truth in lending Act (TILA) implemented through Regulation Z by changing the requirements surrounding disclosures to consumers and addresses the timing of when fees can be charged.

MDIA is also referred to as HERA (Housing and Economic Recovery Act), as MDIA amends HERA which was passed in 2008.

Impacts

Another piece of legislation that is great in theory, but will negatively impact the real estate market as inefficiencies in the process are worked out. Until these are corrected, the real estate market will experience significant delays in closings, increasing the cost to consumers through longer ratelock periods and/or lock extension costs.

The good thing is consumers will benefit from greater transparency once inefficiencies in the process are corrected. Until then, hold on because its going to be a bumpy ride.

Four Key Elements of MDIA and HVCC

1. If the consumer is financing the property, these new regulatory and investor guidelines will impact--and could even dictate--the closing date. Historically, consumers 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, 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 financing transaction can close is 7 business days after the consumer is issued his or her initial mortgage disclosures from the lender.

(Note: Saturdays, with the exception of federal holidays, do count as a business day for the purpose of disclosures only)

I don't see this rule causing too many delays as nearly all financing transactions require an appraisal. Although possible, its not very likely to receive the appraisal and provide it to borrower 3 days before closing (HVCC rule), all within the first 7days of providing disclosures.

2. Upfront fees cannot be collected by the lender (except for credit report fees) until the initial disclosures (most importantly, initial TIL) are received by the consumer.

Upfront fees include appraisal fees, and most lenders won't order the appraisal until they've received upfront payment/deposit from the borrower for the appraisal. Not ordering the appraisal immediately can cause delays in the underwriting and closing process.

The tricky part here is when the borrower is considered to have received the disclosures. Some lenders allow the initial disclosures to be emailed, and therefore, considered received immediately. Other lenders, require the loan be submitted to their investor, who then mails the initial disclosures to the borrower. If disclosures are mailed, they are considered received by the borrower on the 3rd day after mailing. Therefore, its important to ask your lender how disclosures and appraisals will be delivered to the borrower -- email or snailmail, as the answer can significantly impact your closing date (more on this in Email vs. Mail Delivery below).

3. The consumer must be provided a copy of their appraisal at least 3 days before closing. The consumer must receive the appraisal at least 3 business days prior to the mortgage closing. If the consumer believes the 3-business-day required review period is not necessary for whatever reason, he or she has the right to waive that requirement in writing.

This is an HVCC requirement, and to date I have not experienced any significant delays meeting this requirement. Delays may be experienced if an appraisal is mailed vs. emailed; in that case, a borrower is considered to have received the appraisal 3 days after mailing, and then HVCC requires a 3 day review period before they can close.

4. An increase of more than .125% in the Annual Percentage Rate (APR) from the initial Truth in Lending disclosure (TIL) requires the TIL revised and redisclosed to the consumer. The consumer must receive a revised TIL at least 3 business days before closing. A more typical contract date may be 30-45 days. Considering that many things can be changed or finalized throughout the course of the transaction, there are a number of changes that can impact the borrower's APR. Therefore, it is critical on the front end to ensure estimated fees are as accurate as possible.

Ok, this is the BIGGIE. Prior to MDIA, most lenders accurately disclosed their fees, and provided a "good faith estimate" of other third party fees. A good lender always came in close. This is no longer possible with MDIA as a hairline change in 3rd party fees could increase the APR more than .125%. If this occurs (which could be discovered right before closing), the TIL must be redisclosed, and the closing delayed at least 3 business days. Therefore, its very important buyers choose a lender before an offer is made, so the lender can collect 3rd party fees and provide an accurate TIL ASAP.

The tricky part again is when the borrower is considered to have received the redisclosed TIL. This all depends on whether the redisclosed TIL is mailed or emailed. If it is mailed, add an extra 3 day mail wait to the 3 day review period, which means your closing can be delayed 6 more days! Ouch.

Mail vs. Email Delivery

As mentioned above, whether the initial/redisclosed TIL and/or appraisal is delivered to the borrower via mail or email has a significant impact on the closing of the loan. If an email system is utilized, the borrower is considered to have received the documents immediately, and the 3 day required review period can begin. However, if a mail system is used, the 3 day review period doesn't begin until 3 days after the documents were mailed. Whether a mail or email delivery system is used depends on which investor the lender utilizes for the loan.

Currently, many investors allow for an email delivery system, however, there are many that utilize a mail system. The general trend for investors utilizing mail delivery systems is to switch to email, but until then expect delays in closings. Remember, its a learning curve for everyone. To help you visualize how MDIA and HVCC will affect a typical closing see the slides below. I've included a few calendars to help illustrate various scenarios you may encounter, including email vs. mail delivery system, and how redisclosing the TIL affects the closing date.

What you can do to make adjusting to MDIA less painful

1. Choose your lender prior to making an offer. More than ever, there are many moving parts and timelines to adhere to during the underwriting process. Therefore, you need your lender communicating with all parties involved early-on to ensure a smooth and timely closing.

Choose an experienced, competent lender prior to making an offer, and understand the consequences of switching lenders. A new lender must provide a new TIL, meaning the wait requirement periods start from the beginning, and will delay your closing.

2. Negotiate which title company you'll use quickly. Buyers and sellers choose which title company to use during the negotiation process. Real estate agents should negotiate this first, so the lender can contact the title company for their fees to begin computing the initial TIL. The sooner the initial TIL is completed and sent to the borrower, the sooner you can close. They key is to facilitate communication between the lender and title company ASAP.

How to negotiate to use your Title Company? If a buyer wants to use their title company, pull for them by letting the seller know the lender already has their fees, which means the initial TIL is almost complete (subject to the final sales price), and can be sent to the borrower sooner (i.e., close sooner). If a seller wants to use their title company, pull for them by providing the title company's list of fees and endorsements with the Seller's Disclosure.

3. Allow for a 30-45 day closing. This timeline may decrease as the industry adjusts to the new process, but minimize stress by allowing for ample closing time.

4. Lock the interest rate and fees upfront. The best way to expedite the close is to lock in the rate and fees as soon as possible. If the borrower chooses to "float" the interest rate, a TIL may need to be redisclosed when the rate is locked if the rate and fees differ from the initial TIL provided. Redisclosure automatically adds at least 3 days to your closing date.

5. Understand the MDIA and HVCC process, and the learning curve

These are new processes for everyone involved in the transaction, and the best thing you can do is understand the legislation so you can be a team player. There's nothing worse than someone who hasn't taken time to learn the new way of doing business, then blaming everyone else when things take longer than they expected.

What you can do to make adjusting to HVCC less painful

1. Choose your lender prior to making an offer. Doing so allows your appraisal to be ordered quicker. Also, understand changing lenders may require you to purchase a new appraisal as some lenders don't allow you to transfer the appraisal you ordered through another lender.

2. Understand which comps appraisers are using. Appraisers use comps underwriters prefer, and currently underwriters are placing more weight on comps within the last 90 days AND pending comps. You may/may not agree with what that does to your value, but understanding this better prepares you for what may be a lower appraised value.

3. Discuss a contingency plan with buyer & seller. What happens if the appraisal comes in lower than the sales price? Try to figure out worse case scenario, and how the buyer and seller can restructure the price (or not) if it does. Don't be sideswiped by a low appraisal if you can help it.

Mortgage Rates

Last week started off looking pretty uneventful with a slim economic calendar, but got busier mid-week when some pretty big market moving news was announced. This news caused an improvement in rates early in the week, and a worsening later in the week.

So what caused all the volatility last week? Well, the week started off with some pretty sluggish reports in the Stock market, which improved the Bond market and mortgage rates. Adding to the mortgage rate improvement was Wednesday’s successful Treasury note auction. However, Thursday’s Treasury note auction did not go as well, causing downward pressure on Bonds, and a climb in mortgage rates. Rates improved slightly on Friday, but not enough to make up for Thursday’s losses. Overall, the week ended worse than where it began, but better than where the previous week ended.

Unemployment

Thursday’s big news was that 565,000 people filed for initial unemployment claims, which was better than expected and at the lowest level since January. However, that still means 565,000 people are applying for unemployment benefits for the first time, which really isn’t that great of news. This puts the number of Americans receiving unemployment benefits at 6.88 million, which is nearly double than what it was at this time last year.

Forecast for the Week

This week may amount to a fairly volatile week for mortgage rates. Tuesday and Wednesday bring Producer Price Index and Consumer Price Index reports, respectively. The Fed will also release its minutes from the Federal Open Market Committee meeting on Wednesday. All three releases will give us a good gage on inflation (and deflation), and where the economy is headed overall. Adding to this week’s major reports is earnings season in the stock market, with reports due out from the financial sector. It’ll be interesting to see how the financials have been weathering our economic storm lately.

Rates are up overall since we began our precipitous climb in mortgage rates about two months ago. However, we are currently sitting on the lower range of shorterm rates. Therefore, if you're considering buying or refinancing, right now is a good time before rates go back up.

Last week was a relatively calmer week in terms of volatility in mortgage rates. This came as a surprise as we expected to see some pretty big swings on Thursday following the Fed's latest Federal Open Market Committee (FOMC) meeting. Minutes released from the FOMC meeting indicate the Fed decided on no change to the Fed Funds rate, or to the Bond purchase program (which helps keep mortgage rates low). One change from the prior meeting's statement was the Fed no longer sees deflation as a risk, which could signal inflation down the road. Remember, inflation is the arch-enemy of mortgage rates, so even the slightest scent of a possibility of inflation will cause an upward movement in mortgage rates.

Want some more good news from last week? Americans are savings more! Our personal savings rate rose to its highest level since December 1993, which is great considering we had a negative savings rate only a few years ago!

Mortgage Rates

Mortgage rates ended about .25 better than where they began the week. According to Bankrate.com, average 30-year conventional mortgage rates are 5.46%. This improvement comes on the heels of a good Treasury auction. If I were looking for a mortgage, I'd lock in now because this is definitely one of the better rates since they began to inch upward over a month ago.

Forecast for the Week

Two potentially big market movers this week are Tuesday's Consumer Confidence Report which will indicate how Americans are feeling about the economy, perhaps signaling an increase in spending; and Thursday's June Job's Report.

Remember, as a general rule, weaker than expected economic data is positive for mortgage rates, and visa versa.

Volatility continues to be the name of the game when it comes to mortgage rates as they continue their precipitous climb that began roughly three weeks ago.

Mortgage Rates

Home loan rates ended last week about .25% worse than where they began. According to Bankrate.com, average 30-yr fixed conventional mortgages averaged about 5.67% nationwide, up .22% from last week.

Contributing to last week's volatility was the increase in supply of mortgage-backed securities (MBS) on the secondary market -- a large supply of MBS drives their prices down, causing mortgage rates to increase. Some of this supply is the large number of refinances that have closed and are now MBS on the secondary market.

In months past, the Fed has gobbled up MBS to keep mortgage rates low; however, it has not made this move lately causing mortgage rates to increase.

How to Compare Quotes When Rates are Volatile

On average, mortgage professionals are receiving three re-prices a day; therefore, when comparing rate quotes make sure to get quotes at roughly the same time to more accurately compare apples to apples.

Its also important to know the difference between a rate quote and a rate lock. Until your mortgage professional has confirmed your rate is locked for "X" amount of time, you've only received a rate quote, and can be subject to market fluctuations.

Forecast for the Week

Tuesday and Wednesday have potential to bring some big swings to mortgage rates, as both days report inflation on the wholesale and retail level. Tuesday we'll hear about inflation on the wholesale level with the Producer Price Index (PPI) Report; and Wednesday we'll hear about inflation on the retail level with the Consumer Price Index (CPI) Report. Remember, inflation is the arch-enemy of mortgage rates -- the market doesn't have to be experiencing actual inflation for rates to increase, even the slightest scent of possible inflation will move mortgage rates.

If you haven't noticed, I took a long hiatus from blogging -- BAD BLOGGER! Ya, I know what you're thinking, "Just another blogger that gets going then fizzles out -- chalk this one up to just another statistic." Well, sort of, these last two months mortgage rates have consistently averaged in the mid to high 4.0's%, which has brought an onslaught of business that left me gasping for air at the end of the day. Hey, I'm not complaining, it was a nice run; a good portion of the business was rate driven refinances which will likely slowdown as mortgage rates have suffered a presipitious climb these last two weeks.

You've been living under a rock if you haven't heard about mortgage rate's recent increase. As a mortgage professional, its been tough to keep up -- these last two weeks have averaged three rate changes a day, and sometimes four! I've begun telling clients that rate quotes are good for the minute I quote them, because the market is so volatile, and I could get a re-price for the worse (or better) at any minute. Therefore, let your mortgage professional know quickly when you're putting an offer on a home, or ready to refinance, so your rate is locked in quickly.

Mortgage Rates

Rates ended last week about .375% to .5% worse than where they began. According to Bankrate.com, a conventional 30-yr fixed rate purchase is averaging about 5.45% nationwide. Much of this change was due to Friday's Jobs Report; although, the report showed the U.S. continues to loose jobs, less jobs were lost than expected -- 345,000 jobs lost in May, vs. 520,000 expectation, taking our unemployment rate to 9.4% from 8.9%. This caused a rally in the stock market, which sent money flowing out of bonds and into stocks, causing mortgage rates to rise.

Where are rates headed?

According to a panel of mortgage professionals on Bankrate.com, rates are headed higher with slightly over 1/3 of the panel giving this prediction. I tend to agree -- over the shortrun we may see some downward movement in rates; however, over the longrun, rates will rise. Our large government deficits, and monetization of debt will eventually lead to inflation (the arch-enemy of mortgage rates), its just a matter of when and how successful the government will be in combating it. Even the slightest scent of inflation will increase mortgage rates.

Should you lock or float your rate?

Whether or not rates will increase or decrease in the shortrun is difficult to predict, as our turbulent times are causing some major volatility. I recommend calculating your monthly payment at current rates, and locking your rate if it yields you a monthly payment within your budget. If the rate increase has taken the monthly payment on your home out of your budget, then wait to see if rates drop AND begin looking at other house options within your budget in case rates don't fall.

Forecast for the Week

On Thursday, we'll hear Retail Sales numbers which will have a direct affect on the stock market, this will cause money to flow in or out of bonds, causing rates to fall or rise, respectively. Remember, as a general rule weaker than expectedd economic data is good for mortgage rates, while positive data causes rates to rise.