Mortgage Disclosure Improvement Act (MDIA)

The Mortgage Disclosure Improvement Act (MDIA) goes into effect July 30, 2009. Do you know what it is? How it affects you and your buyers? Cindy McCarty from Coldwell Banker Home Loans provided us with some following key points.

Key Provisions:

1. The lender must provide or mail an initial TIL disclosure within 3 days after receiving the customer's application.

2. The lender must deliver or mail a TIL disclosure at least 7 business days before closing.

3. A final, accurate TIL must always be provided at closing.

4. If the annual percentage rate (APR) increases more than 0.125%, the borrower must receive a revised TIL at least 3 business days before closing.

Why might the APR increase?

• Interest rate changes
• Loan amount increases
• Type of loan changes
• Fees charged increases
• Loan-to-value (LTV) increases

Things to consider:

When writing a purchase contract, remember that the earliest possible day that closing can occur is 7 business days after the lender issues the initial TIL.

Set customer expectations about closing timelines and, whenever possible, plan for a closing date that provides enough time to accommodate the additional waiting period required if the APR increases by more than 0.125%.

Examples/Scenarios:

Example #1:

8/3/09: Application taken
8/4/09: Initial TIL delivered
8/12/09: EARLIEST POSSIBLE CLOSING DATE

Example #2:

8/3/09: Application take
8/4/09: Initial TIL delivered
8/10/09: Customer locks rate, which increases the APR by more than .125%; revised TIL sent to customer.
8/13/09: Customer receives new TIL
8/17/09: EARLIEST POSSIBLE CLOSING DATE


Note: These examples are assuming Coldwell Banker Home Loans/PHH is the lender. It is entirely possible that other lenders will interpret the MDIA language differently.

Refinance Battle Plan

Today's Personal Journal section of the Wall Street Journal had a great piece on refinancing your mortgage. The entire article can be found here (you may or may not need to be a subscriber). While some items on the refi checklist are the same as they've ever been (ensure you have equity, check your credit score, etc.), there are some newer concerns that every real estate agent, loan officer and borrower should be aware of.

- While not a completely novel issue, you should know that jumbo money (loans in excess of $417,000 in most places) is not as cheap, and will typically come with a larger interest rate than "conforming" loans backed by Fannie Mae and Freddie Mac.

- Ideally, you have at least 20-25% equity in your home. If you don't, however, you may still be eligible to refinance at a lower rate through the Making Home Affordable program. Clink here for details.

- How a lender obtains an appraisal as changed effective May 1st as a result of the Home Evaluation Code of Conduct. Here is a nice breakdown from another blog on the real life impact of this change.

- Second mortgage and home equity loan holders may be less likely to stay in second position than in previous refinance booms. If you have a second, you may want to check with that lender before commencing the refinance.

- Condominiums are becoming more difficult to finance, as the lender underwriters are looking more closely at the condo project as a whole (not just your unit).

Note v. Mortgage: What's the Difference?

This may be old hat to some veterans out there, but it never hurts to cover the basics.

The terms loan, mortgage, deed of trust and note are sometimes used interchangeably by parties to a real estate transaction. Only when you get to settlement (when you see the huge stack of papers on the closing table) do you realize there is a difference. So let’s cover the note, the mortgage/deed of trust, and the differences between them.

The Note

A note (or promissory note) is – very simply – a contract whereby a party makes a promise to pay a sum of money to another party under specific terms. In real estate, it is typically a borrower agreeing to make monthly payments of principal and interest over 30 years to a lender. The note has virtually nothing to do with the property itself, and can technically exist without any collateral at all. If the borrower doesn’t pay, the lender can sue “under the note” and obtain remedies for breaching that contract.

The Mortgage or Deed of Trust

While there are differences between a mortgage and a deed of trust, let’s ignore them for a moment, and use the term mortgage (because it’s only 1 word). If it's killing you to know the difference, click here.

A mortgage is actually a transfer of an interest in property. While a mortgage is tied to the underlying debt created by the note, it is not a promise to pay the debt. It really isn’t a “promise” to do anything. Instead, it contains “granting” language – like a deed – which gives the lender the right to take the property if the borrower goes into default and doesn't pay under the terms of the note.

Key Differences

- A note is signed by the people who agree to pay the debt. A mortgage is signed by those who own the property being mortgaged. In a typical residential setting, signers of the note and the mortgage are the same, but they do not have to be. In a commercial context, you will often see the corporate entity which holds the property sign the mortgage, while the principals of the entity sign the note.

- A mortgage needs to be recorded in the county or town recording office, the note does not. Instead, the note goes directly to the lender.

- A mortgage kills more trees than a note (approximately 35 pages v. 6). But don't hold that against the mortgage, it doesn't know any better.