Dennis' Mortgage Blog

Note: New Federal Legislation Effective 7/31/09 That Will Delay Closings For All Transactions, TIL Must Be Signed 3 Days Prior To Fundings. More to come!

Question of the week:  Can you explain the Truth-In-Lending Disclosure Statement (TIL)?

Answer:  Great question and great timing since starting July 31^st the mortgage industry will be under new regulations regarding the Truth-In-Lending (TIL) and when it is delivered and signed by clients before fundings and closings can occur.

The TIL is a very complicated document, it generates more questions than every other form and document combines.  Its purpose is to allow mortgage applicants to compare loan programs and loan quotes from different lenders, however it is frequently misused and misread thereby undermining the purpose.

To save space on this update and also bytes on the email transmission to everyone I have constructed a page on my website going through the TIL and how APR is calculated, to learn how the TIL is compiled:  Truth-In-Lending Explained.

Please note that APR is easy to “fudge” or to come up with a low figure to make one loan product or loan originator’s quote look better than it may actually be. For the TIL to be effective the same fees, charges and line items from the Good Faith Estimate must be included in the calculation.  Because of this do not accept a TIL without the Good Faith Estimate used to compile the numbers and calculations.  Is pro-rated interest from closing to the end of the month included? Is the escrow fee being quoted accurate to market price?  Is mortgage insurance, if necessary, on the estimate?  Is there a large number on the “Document Preparation” line—this fee is not used for APR calculations but is essentially the same as processing, underwriting or other lender/originator fees.

It is easy for someone providing a quote to leave some information off the Good Faith, and therefore create a lower APR on the Truth-In-Lending, so always when using a TIL to compare quotes make sure the Good Faith Estimates are available and compare those as well.

Also on the page on my website (here it is again) are two lists, one contains fees that must be included in the APR calculation and the other contains fees that are not included in the APR.

I will keep this link on my “Question of the Week” section to assist new homeowners:

IRS Form 5405 for First Time Buyer Tax Credit for those eligible for the up to $8000 credit.

Have a question for me?  Ask me!   

Major Change! Real estate agents, lenders and escrow officers need to be very aware of the new regulations that will delay closings because the borrowers must now sign Truth In Lending disclosures 3 days before funding can occur—which means delays between loan docs and fundings on purchases similar to 3 day right of rescission we have in California on refinances.  Any changes for any fees after the loan docs are drawn re-starts the clock so everyone needs to be aware of the rules and how they apply.  I am taking two trainings this week to get my arms around the regulations and will be posting the information on my blog on my website (www.denniscsmith.com/myblog) so stay in touch with it.

Not a good week for mortgage backed securities (MBS), and that means not a good week for mortgage rates.  Keeping in mind drops in MBS prices mean increases in mortgage rates here is how our week went: Monday big drop, Tuesday medium drop, Wednesday huge drop, Thursday good gain up, Friday medium drop so far. 

In our industry we always have mixed emotions, that is because bad economic news leads to great mortgage rates and good economic news leads to higher mortgage rates.  This week we had several pieces of positive economic news, from fewer jobless claims than expected, to higher than expected inflation numbers, higher than expected retail sales, strong earnings—or stronger than expected—reports from several corporations, and different experts looking at the recession bottoming out by the end of the year (ah-hem..who was writing this in January? J ) combined for a somewhat rosy economic week which boosted stocks and hurt bonds. 

So while we are glad that the economy appears to being somewhat better than expected or anticipated, or at least in a choppy period that usually indicates transition from moving in one direction to another, the news has led to a hike in mortgage rates for the week.  Even the Fed weighing in with another hefty buy of Fannie and Freddie securities (now over $650 billion in purchases) was not able to stem the climb.  This week we see the largest Friday to Friday climb since January. 

Our rate market is volatile to the upside, combined with the new TIL regulations coming in a few weeks that will lead to some delays and the HVCC appraisal process that we have seen lead to delays, I strongly recommend borrowers lock at least through their escrow periods and perhaps a bit beyond.  We have many challenges from outside the traditional participants in the transaction, challenges beyond our control that create obstacles to the efficient and timely transactions were are all accustomed to the past several years.  Lock your rates to accommodate those challenges and potential obstacles, have patience, ensure information, forms, signatures, etc are executed and communicated in a timely fashion.  And have patience.

A very wise and experienced agent once told me, “Escrows are like pregnancies, there is a due date….”  Patience, communication, diligence and professionalism lead to good closings as soon as possible.

By providing this honest assessment I hope there is no one out there thinking myself and Stratis Financial cannot perform in a timely fashion, we can and do with every file—there are factors out there however that we do not control, neither does escrow, or title, or any other service chosen by the clients and agents.  Choose local professionals for your services with quality communication and you will stay on top of your escrow and closing time frames. 

Happy Anniversary it was one year ago this week that the chairman of the House Financial Services committee, Barney Frank, said, “Freddie Mac and Fannie Mae are fundamentally sound.  I think they are in good shape going forward.”  Congressman Frank has said many things over his tenure in the House of Representatives that have been somewhat suspect, this may come close to the top of the list.  His involvement in pressuring Fannie and Freddie to loosen their lending guidelines to the extent that Fannie/Freddie loans were approved to 100% of the purchase price of a home for borrowers with FICO scores below the national median with no verification of income and debt to income ratios over 60% was almost criminal—but there will be no investigations of Mr. Frank, his committee nor the relationship between those members and Fannie and Freddie executives and their donations.  Off my soapbox.

As mentioned above rates jumped this week:

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional  5.25%                 UP 0.375%

30 year conforming-jumbo 5.625%                   UP 0.25%

30 year FHA    5.375%                                    UP 0.375%

30 year FHA jumbo 5.875%                            UP 0.25%

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, and period rate is locked (i.e 45 days instead of 30 days).

Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected.  Numbers provided are for comparative purposes only.

My prayers to Leslie, her mother and family as Leslie’s step-father Norm passed away this week after a prolonged battle with cancer.  Grandpa Norm to my kids, always had a laugh a smile and was eager to tell or hear a good story.  I have met a lot of nice men in my life but none nicer. Be at peace Norm, we love you and are thankful to have had you as part of our lives.

Hug your family, reach out to friends you have not reached out to in a while and thoroughly enjoy yourself each day on this little pebble we share as it rockets around the Universe.

Have a great weekend,

Dennis

Remember this update is posted weekly on My Blog at www.DennisCSmith.com ; feel free to forward the link to family and friends who may be interested in past commentaries. 

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