New rules could cause delaysPerhaps the most controversial new rule is that a loan now cannot close for at least seven days after the initial TIL has been provided. This rule is meant to slow down the process, so borrowers will have time to digest the TIL and make sure they understand the terms and costs of the loan.
That's a good protection, but the concern is that these inflexible three-day and seven-day time periods could cause costly delays. Bennett cites a short sale that's contingent on the approval of the seller's lender as an example. She says some lenders insist that the sale close within 15 days and impose a penalty on the buyer if there is a delay.
"If the TIL from four months ago was wrong by 0.125 percent, (the seller's lender) isn't allowing extensions or there is a $100 per day penalty if the short sale is delayed," she says.
A delay of even one day could be especially costly for borrowers who want to close a so-called "streamlined" refinance of a loan that's guaranteed by the Federal Housing Administration, or FHA. Frommeyer says most FHA streamlined refinances close within the last three days of the month.
"If you miss that date, you have to wait another whole month or you are going to pay another whole month of interest just to close because the FHA gets all of their interest for that month. You are probably going to blow a rate lock too," he says.
Emergency exemption may be mythicalThe new rules allow borrowers to expedite a loan closing if they have a "bona fide personal financial emergency" and if they sign a written waiver that describes the nature of the emergency and is not on a preprinted form.
The classic example of such a situation is a speedier closing of a refinance loan to stop an imminent foreclosure sale of the borrower's home. The Federal Reserve has stated that this example is "merely illustrative," but hasn't published any other examples of emergencies that would qualify. For instance, Bennett poses the question of whether urgent medical care might make the cut. At this time, the answer isn't clear.
The question may turn out to be moot because lenders aren't likely to allow borrowers to expedite a closing, emergency or not, according to Sterbcow.
"The lenders don't want anything to do with the financial emergency exemption even though it's written into the law. The liability is too high," he says.
Lenders may have some cause for such fears because the Federal Reserve has expressly rejected the idea that such a waiver would insulate the lender from liability. That could prove problematic for borrowers who have a legitimate need to close a new loan in a hurry.
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