Do you ever find yourself having conversations in acronyms and abbreviations? I guess it makes sense to shorten phrases, especially when using those terms frequently in conversation, but not everyone knows what they are all the time. So to increase your list of known acronyms, I provide you with information about TILA, HERA, and HOEPA.
The Housing and Economic Recovery Act (HERA)
HERA… sounds like a mix between “She-Ra” and “He-Man.” But it isn’t related to awesomely ’80s superheroes. HERA is the Housing and Economic Recovery Act, which was passed by Congress in 2008 under President Obama. The regulations for this act were published under the Truth in Lending Act (see below). These regulations basically provide a fair and transparent regulation of the real estate industry. It makes lenders use clear language on disclosures and provide a full account of all charges/fees that the home buyer will need to pay. In the end, it provides a sense of confidence for home buyers because they will know exactly what their loan will look like, and how much money they’ll be spending.
The Truth in Lending Act (TILA)
This is a federal law that protects consumers in credit transactions, like mortgage loans. It requires lending institutions to provide the loan applicant with clear disclosure of any terms, and also to provide a record of all costs involved in the transaction. The regulations implementing this law are known as “Regulation Z.”
HERA amends TILA (implemented through Regulation Z) to change requirements for early and final disclosures from lenders to home buyers, and changes the timing for which fees can be charged. These changes took effect yesterday, July 30, 2009. Because the timing of disclosures, fees, and even appraisals — read our previous post regarding changes to home valuations/appraisals — is now being strictly regulated, closing dates could be dictated by lending institutions. Generally, keep a 30-day window open for each transaction when financing a property.
Home Ownership and Equity Protection Act (HOEPA)
This act sets guidelines and standards for home loans and makes sure that home buyers can get the fairest deal possible. Home buyers can rest easy knowing they can’t be swindled by a lender, because lenders have to abide by this act. If not, bad news bears!
Now you know what HERA, TILA, and HOEPA are. So, how do we make sense of all this? Here are some key things you’ll need to know when getting your home loan:
- Until now, lenders could collect fees at the time of loan application, but now upfront fees cannot be collected by the lender (except for a credit report fee) until the initial disclosures are received.
- As I stated in my previous post about appraisals, the home buyer must be provided with a copy of the appraisal a minimum of 3 days prior to closing.
- If the Annual Percentage Rate (APR) increases by more than 0.125% from the initial TILA disclosure, that disclosure must be revised and reissued to the home buyer. The home buyer must receive the reissued disclosure within 3 days prior to closing, so he can determine whether or not he is comfortable with his loan choice. Keep in mind, though, that if you end up in this situation and feel uncomfortable with your loan choice, therefore going with a different type of loan, it may impact your closing date.
It is a lot of information, but when applying for a loan and going through the home buying process, it is a good idea to know what you are getting yourself into, especially because it is a lot of money, and a lot of fine print. Go with a loan you feel comfortable with, a mortgage broker you feel comfortable dealing with, and a Realtor® you feel comfortable working with. It will make your transaction a lot smoother!