(August 3,2009) —There have been several new developments in real estate at a
national level which will impact Realtors® in writing offers. These include the Home
Valuation Code of Conduct (“HVCC”) which is applicable to appraisers,the Truth in
Lending Act (“TILA”),the Home Ownership and Equity Protection Act (“HOEPA”) and
Regulation Z which implements the new provisions contained in the TILA and HOEPA.
The TILA,HOEPA and Regulation Z apply to lenders. The key thing for Realtors® to
keep in mind with all of these is that the deadlines contained in the contracts may have to
be modified or set farther out due to the new rules.
The HVCC is a new code of conduct for appraisers,adopted by Fannie Mae and
Freddie Mac in conjunction with the Federal Housing Finance Agency (FHFA) and the
New York Attorney General’s Office,which went into effect for all single family loans
(Fannie Mae and Freddie Mac) originated on or after May 1,2009. It was adopted in an
effort to prevent appraisal fraud and undue influence on appraisers. This new Code of
Conduct applies to any and all loans which involve Fannie Mae and Freddie Mac or
which will be sold to either of these companies. It does NOT apply to FHA loans,VA
loans,Rural Development’s Single Family Housing Guarantee Program or the Federal
Home Loan Bank mortgages.
Understandably,most of the changes under the HVCC will only affect lenders
and appraisers. However,there are a few things for Realtors® to keep in mind.
Realtors® are no longer able to order an appraisal or hire,select,or pay for an appraiser
in Fannie Mae and Freddie Mac loans. These things must be done either by the lender or a third party which is specifically authorized by the lender to do these things on their behalf. These third parties are often appraisal management companies. The lender will
NOT accept an appraisal report provided by an appraiser who was not selected,hired or
paid in this manner. Therefore,in these transactions,it is important that the Realtor®
understand that he cannot provide these services for his client.
Another important thing for Realtors® to understand is that a potential third party
has been added to the mix – the appraisal management company. This may result in a
higher cost for the appraisal and a longer turn around time for the report. This could
potentially delay time frames in the Purchase and Sales Contract. Realtors® should be
aware of this possibility when completing any offer or advising sellers on offers received.
NAR has reported that there have been delays during the past several months that the new
rules have been in effect. Hopefully,these delays will lessen as everyone becomes
accustomed to the new procedures.
Two different additional concerns of Realtors® regarding the new HVCC
guidelines are (1) out of area appraisers who are unfamiliar with the local market,and (2)
whether agents can speak to appraisers. The Federal Housing Finance Agency,Fannie
Mae and Freddie Mac have all recently clarified that the appraisers MUST have
knowledge of that market area in question to be able to perform appraisals. This should
rectify any problems which Realtors® and their clients were having which arose because
appraisers were completely unfamiliar with the area in which they were performing the
appraisals. The second question often raised is whether Realtors® can speak to the
appraisers. Yes,Realtors® may speak to the appraisers,but any information received by
the lender MUST be independently verified by the appraiser. Just remember that
Realtors® have a fiduciary duty to your clients to keep confidential information
confidential.
The second wave of new requirements recently passed which will affect
Realtors® are those concerning the new lending laws. The TILA,the HOEPA and
Regulation Z were recently amended to increase the protections to borrowers. These
laws are quite complex and lengthy,but the important thing for Realtors® to understand
is that there are specific time periods which lenders must follow when processing loans.
These time frames may impact a closing and require it to be postponed. In some
instances,this could result in a failed closing.
Generally speaking,these new laws pertain to all residential home loans which
are secured by the home and are subject to RESPA. These would include home
refinances,loan assumptions,and new mortgages. The goal behind the new laws is to
provide the consumer with greater disclosures,more time in which to review the
disclosed information and greater flexibility in comparing one lender’s offer to another.
The main provisions which Realtors® need to familiarize themselves are the time
frames to which lenders are now subjected. Under the new requirements,lenders are
required to provide consumers with good faith estimates within three business days after
they have applied for the loan by either delivering them to the consumer or placing them
in the mail. In addition to this three business day requirement,the lenders are NOT
permitted to charge or collect ANY fees other than a reasonable fee for conducting a
credit check,until these initial good faith estimates have been received by the consumer.
Once the initial good faith estimates have been received by the consumer,there is
another mandatory waiting period under the new requirements. The lender cannot
consummate (i.e.,close) the loan for seven business days following delivery of the initial
disclosures. This could slow the process for the rapid closing loans which some agents
and clients have conducted in the past.
If there are any changes in the annual percentage rate (APR) from the amount
listed on the initial disclosures to the ones in place at the time of closing,then corrected
disclosures may be required which would start another waiting period. The APR includes
the interest rate as well as other costs of the loan. If the APR at closing is more than 1/8
of a percentage point (0.125) above or below that originally quoted,then new disclosures
are required. This is true in regular,traditional transactions. In irregular transactions
(think ARM transactions,balloon payments,etc),corrected disclosures are required if the
APR has changed more than ¼ of a percentage point (0.25) above or below that of the
original disclosures. If corrected disclosures are required,then there is another three
business day waiting period for the new disclosures to be delivered and then an additional
seven business day waiting period following that. This could stop a closing in its tracks
and could delay it for an additional 10 business days! If you need to extend the closing
and all parties agree,you can use TAR Form F7 (Closing Date/Possession Date
Amendment).
Another important thing to keep in mind is that under these new regulations,there
are TWO different definitions of business days. For the three day initial disclosure rule
following application,business day is defined as “days on which a creditor’s offices are
open to the public for carrying on substantially all of its business functions.” 74 Fed Reg.
23289,23291 (Nat 19,2009). This could be difficult to calculate,because depending
upon the financial institution,Saturdays may or may not be included. To further
complicate matters,there is a different definition of business days when referring to the
seven business day waiting period before the loan can be closed. For this calculation of
time,a business day is defined as “all calendar days except Sundays and the legal
holidays specified in 5 USC 6103(a),such as New Year’s Day,the Birthday of Martin
Luther King,Jr.,Washington’s Birthday,Memorial Day,Independence Day,Labor Day,
Columbus Day,Veterans Day,Thanksgiving Day,and Christmas Day.” Id.,23300-01.
Please make sure that you understand these differences.
It is possible for the consumer to waive these required waiting periods,but this
practice is not expected to be the norm. Consumers can waive EITHER the three day
waiting period or the seven day waiting periods after the original disclosures have been
made,but only to meet a “bona fide personal financial emergency”. What constitutes a
“bona fide personal financial emergency” will be determined on a case by case basis and
it will be difficult to establish. In order to request such a waiver,the consumer must
provide the lender with a dated,written statement which explains the emergency,
specifically waives the waiting period or modifies it in some way,and is signed by ALL
of the consumers who will be primarily liable on the debt.
The bottom line on all of these changes is that the date of closing may be longer
than originally expected in order to comply with all of the new requirements. You should
speak with your clients to make them aware of this possibility and “build in” additional
time if your transactions involves a Fannie Mae or Freddie Mac transaction (HVCC) or
any residential home loan which uses the home as security and is subject to RESPA.
Please keep in mind that if the transaction does not close by the closing date specified in
the contract,it will require the approval of BOTH parties in writing to extend the closing
date or the contract will die. All it takes is one side to refuse to extend the closing and
the deal is over.
– Submitted by TAR’s Legal &Ethics Hot Line Attorneys
