Nashville Real Estate Forum

Tips from the Trenches

Putting the ‘Truth' in Lending

By Gary Moore
Principal Broker/Mortgage Planner

"The truth hurts," they say.

That comment usually applies to facing the uncomfortable facts and dealing with reality rather than being in denial. But a new way to require the "truth in lending" will be painful for the sleazy and marginal element by forcing them to play on the same field as do I and the majority of mortgage originators.

New mortgage guidelines which went into effect yesterday, as part of the Housing and Economic Recovery Act (HERA) and the Mortgage Disclosure Improvement Act (MDIA), will hopefully force mortgage providers of all stripes---brokers, bankers and lenders---to tell the truth to borrowers up front, so that the paperwork at the closing table looks strikingly similar to what they thought they were getting when they applied.

From my personal perspective, I look forward to not having to compete with---and lose loans to---those who tell borrowers whatever they want to hear up front, and then close the loans much differently. I look forward to prospective borrowers accepting the truth in the following statements I make:

1---You "shop" for a loan by shopping for the integrity, skill and experience of the person and the company you are dealing with; by determining who is more likely to get the loan done on time and with no surprises; by determining which originator and processor are more likely to be accessible, easily approachable and proactive in keeping you in the loop, and by who is more likely to be in business to answer your questions and assist you with any concerns next year, or for the next two years, five years, etc.

If it is obvious to a mortgage broker that you are "shopping" for a loan on the basis of what interest rate someone will sling at you, or half-truths on closing costs, you have shot yourself in the foot. You may get "played," as the mortgage person sees you are playing him or her and that you are a time-waster with no loyalty. The truth is that interest rates are about the same with everybody, so a good decision by a borrower is tipped by other factors.

2---What I tell you on the day of application will still be true on the day you close. If anything changes along the way---such as due to guidelines, the market or underwriters---it will be with your knowledge and consent at every step. I have lost many a borrower who was swayed by a mortgage broker who sold them pie in the sky---such as, "you don't need to document income to get this loan"---and then closed the loan differently, when the borrower was sitting at the closing table with the moving van already loaded and rolling. Under that pressure, most borrowers feel they have no choice but to close the inferior, more expensive loan.

The portion of the MDIA that will hopefully be a field leveler requires that if the Annual Percentage Rate (APR) of the loan changes by more than an eighth point from the original disclosure, that the loan terms must be re-disclosed to the borrowers, and that the loan cannot then close for four days. This would iron out some of those closing table shockers.

Failure to comply could result in a $4,000 fine to the lender per incident. Lenders are so freaked, scared, concerned----you pick---about this that one of my lenders has added two new staff positions just to handle this change, which is actually a change to the Truth-in-Lending Act. It is the "TIL," or truth-in-lending form, which reflects the APR change, which is the result of fees changing from the initial good faith estimate and TIL. I do not know what is the official title of these two new staff positions, but we are nicknaming them the "TIL Queen" and the "Gatekeeper."

The "TIL Queen" will look at the application which includes a good faith estimate and truth-in-lending from the broker, then she will ASAP get the lender's own TIL and other disclosure documents out to the borrower, via email or however is the quickest method the borrower can manage. This becomes the official TIL, whether it varies from what the borrower received from the mortgage originator or not. Lenders may pad and estimate costs high to the extreme, just so they will not have to re-disclose and slow down the closing later if something changes to the high side.

If things change to the low side, which is the case more often than not on my loans, then there is no re-disclosure or interruption. I plan on following suit, to a reasonable extent, and try to disclose high---one example would be disclosing that the borrower would have 30 days prepaid interest rather than 15, which usually splits the month with a middle date estimate. Prepaid interest is what is paid in advance at closing, and that is why a borrower's first monthly payment skips a month.

The "Gatekeeper" will get the fun job of killing or delaying closings with a last-minute review for compliance.

Ironically and unfortunately, the actual Truth-in-Lending form that we are talking about is probably the most confusing and misunderstood document among all the disclosures you will be asked to sign. When we meet to get your loan going, just ask me if you have a question about this----it is too much to go into here.

As you may infer, I am taking a glass-half-full view here. Mortgage guidelines have been changing at a rapid rate for the last two years. It is much to keep up with. Mortgage market conditions make it more important than ever for a home buyer or home refinancer to work with someone they can trust to tell the truth---from Day One.

If your closing gets delayed or your loan takes longer to close because of this and other new guidelines, please remember that it is part of a bigger plan to raise standards and truly put truth in lending.

(Check out http://brentwoodhomeloan.com. Principal Broker and Mortgage Planner Gary Moore produces Tips from the Trenches, copyright 2002-2009, designed as a resource for consumers and for Realtors who seek ongoing improvement, from the perspective of business partner and teammate. Contact me at 615-579-8658 for group or personal training and to pre-approve your prospects into the program which best serves their unique picture.)