New MDIA Law Spells Danger for Home Buyers
Aug 18th, 2009 @ 9:55 AM by Carolyn Warren
If you read an article in your local newspaper that said the new Mortgage Disclosure Improvement Act (MDIA) helps protect home buyers, you’ve been misled. This new law that went into affect July 30, 2009 is a wolf in sheep’s clothing.
I’ll explain.
What Sounds Good: Lenders must provide you with the Truth in Lending (TIL) form at least seven business days before closing. This form shows the Annual Percentage Rate for your loan. Receiving this information in advance sounds great. But wait. There is a big catch.
The Potential Deception: The Annual Percentage Rate is not the interest rate you’re charged on your Loan Note, the actual contract. It is a conglomerate of the rate, plus some of the closing costs amortized over the life of the loan.
Confused? So are lenders. They don’t agree on which closing costs should be included in the APR calculation. That means a more expensive loan can appear to be cheaper by having a lower APR on the Truth in Lending form. Clearly, it’s not a useful figure.
“So what’s the point of making a big deal out of the Truth in Lending form?” you ask.
Exactly. Experienced loan officers agree that the Annual Percentage Rate is not the way to shop and compare loans. Only the government folks who have never actually closed a mortgage are in love with the TIL, a form they invented long ago.
The Exception: If you sign and return the form the same day you receive it, you can shave off a day or two, but there’s still a mandatory, minimum 3-day wait. But hold on, it gets worse.
The Irony: Congress sat around scratching their heads saying, “How can we protect borrowers better?” But since they’ve never worked in the mortgage industry, they ended up with a law that has the potential to actually make home buying more difficult. Get a load of this…
If the APR changes by more than one eighth of one percent (.125%) between the first rough draft Truth in Lending disclosure and the final figure, you have to start all over again with receiving the TIL form and going through a 3-day wait period. Even if the figures change in your favor, you still have to suffer through this delay. And remember, this is not a change to your actual interest rate; it’s a change to a conglomerate of figures, including how many days to the end of the month from your closing date.
Dire Consequences: Your loan could fail to close on time and/or you could lose your rate lock if:
1) You want to change your mind about the down payment and loan amount.
2) The seller wants to reduce the price to compensate for something discovered during the inspection.
3) You want to close on a different date than the one you originally planned, a common occurrence.
4) The title company or escrow company or closing attorney wants to offer you a cheaper price than they initially disclosed; or if their fees vary at all from the lender’s initial estimate, such as if it was unknown that they would charge their own wire fee, courier, document fee, loan tie-in fee, closing protection letter fee, etc.
5) You want to float your rate because rates are dropping. This is a problem, because if you get a better interest rate, your APR will change and delay your closing.
6) You are refinancing and your pay-off figure came in lower or higher than expected, thereby changing your loan amount.
Thanks to the MDIA, you get no grace, no chance to shop for cheaper closing, no opportunity to change your mind a little bit, and there is absolutely no margin for human error.
Watch Out: If it’s important for your loan to close by a certain date, or if you locked in your interest rate on a good day and now rates are higher, this new law could become your worst nightmare. Nothing can change between the time you sign the TIL form and the closing, because then the Annual Percentage Rate will change by more than the minimal .125 percent and your lender is required to prepare brand new disclosures, send them out again, get your signatures, and go through another waiting period.
What You Can Do: Besides writing to your Congressperson and complaining about this short-sighted MDIA law, besides informing your friends and associates about this article, you need to decide on the down payment and closing date you can stick with. And equally important, choose an ethical, experienced loan officer so you don’t become a victim of lender error.
Carolyn Warren is a banker-broker and the author of Mortgage Rip-Offs and Money Savers (Amazon.com and BN.com ) Her website is www.AskCarolynWarren.com.
Thank goodness for Carolyn Warren and her wise well researched advise. Buyers need to stay abreast of the changing times in our economy which affect the changing laws in congress.
Right on!! They say these laws are supposed to protect the consumer. How, by increasing the odds that they’ll lose their rate locks? Or by having to pay additional fees to extend their locks? I see nothing new or good about the new MDIA laws. The government could benefit from Carolyn’s wisdom! This is just one more way that they are trying to force mortgage brokers out of business and force everyone to use banks.
As a buyer currently in the market to purchase a home, I found this article to be very informative and enlightening. I appreciate the author taking the time to educate buyers on a topic that has been given minimal attention in the press but which can greatly impact the home purchasing process.
Our supposedly well-meaning Fed Reserve should do their research before taking actions that affect us. What a shame this type of information was covered better in the mainstream media so more people could be informed.
It has been a difficult time for a lot of homeowners to keep their own home. The downturn of the economy kept a lot of us to be more conservative of our spending to protect our very utmost investment- our own home.
This new Act seems to have not anchored us to be more protective of our investment of our own homes. At any time it become volatile for us to negotiate the best rates we thought we have but not really.
If only we can be helped more by the our legislators.
Deplorable waste of our tax money. shame on this government entity !!! They are ruining the real estate and mortgage industry in the guise of “protecting the consumer”. When in fact making it more difficult to navigaate the home buying or refinance market and increasing costs. Hey MDIA legislators…get a life !!!!
I have read “Mortgage Rip-Offs and Money Savers” several times and each time I learn more and more valuable information regarding the shady world of mortgage lending. The mortgage consumer is blessed to have Carolyn Warren working for them. She is one of the few bright spots in a dark industry.
Again, Carolyn Warren has shined a bright light for all of us in making our way through the “home buying process.” As mentioned by others above, we need more of the kind of help Carolyn provides. I, too, find myself re-reading “Mortgage Rip-Offs and Money Savers” just to feel more secure about what I am doing in purchasing a home.
Thank you Carolyn for being the watchdog that we all need on our side. This is absolutely unbelievable. Remember, be very afraid when you hear these words: “I’m from the government and I’m here to help you.” I want my money back and they can keep the ‘change’.
As a buyer currently in the market to purchase a home, I found this article to be very informative and enlightening. I appreciate the author taking the time to educate buyers on a topic that has been given minimal attention in the press but which can greatly impact the home purchasing process.
daizy