HERA RAISING

If you applied for a loan after 7/30/2009, there is a new, and as of yet, little known law in effect that has the potential to cost you a lot of money. Hopefully, that opening line grabbed your attention. The new law is called the Housing and Economic Recovery Act, or H.E.R.A. Sure, it sounds wonderful. Who would argue with Housing and Economic Recovery? If fairness, there are lots of parts of this law that are beneficial. And while the law was designed to protect the public from predatory lending, it instead, serves to delay loan closings.

Here is my opinion on some of the flaws:

1. The federal government wants you to be aware of what your A.P.R. is, and if it's gone up since your loan application was taken. Sounds good. But here's a couple of questions. Do you know what your A.P.R. is? Have you ever known? Did you know it is different than your interest rate? If you are like 99.9% of all Americans, the answers are "no". The link that follows, is a pretty good definition... have a look . OK, are you still awake? That probably still didn't make a lot of sense. FLAW #1: The government wants to protect you from an increase in your A.P.R., yet they have never come up with a good definition for it. The federal government came up with this rather useless number in...get this..1968. Yes, an A.P.R. has been on mortgage loans for 41 years, and most people wouldn't know it if it was written in flashing neon red lights.


2. If your final A.P.R. increases by more than .125(1/8)% from your initial loan disclosures to your final ones, you must be given an additional six business daysto decide if you still want your loan. That actually sounds kind of good. But wait. How does that figure get increased? Well, the most simple ways are if interest rates went up from the time you started until the time you were ready to lock your loan. Or how about if the sales price changed, maybe you decided to change loan programs all together.Any of those very simple, normal things could very easily trigger that extra waiting period. So how does this effect you? FLAW#2: In order to avoid this extended wait period, your bank, mortgage broker will likely show a marginally higher interest rate and/or loan costs in your initial disclosures. Keep in mind, the waiting period is only triggered if your final A.P.R. is higher. FLAW 2A: The odds of your initial disclosures being higher actually will increase with the new law.


3. Once the lender has or package to start with, you must be sent(read: you must wait) and additional 4 business daysbefore your appraisal can be ordered. The premise is so that you will have three business days to receive the previously mentioned flawed disclosures in your mail...not your email,mind you. You're mail..as in post office. FLAW#3: Does the government not know about this new thing called the Internet?

Now here's where the numbers meet the road.You potentially have just enountered an additional 10 business days of waiting. Business days don't count Sundays,folks.And in buying a home, you have two VERY important dates to be aware of. The first is your inspection contingency period. Basically that is the number of days you have to inspect a property once you are in escrow. During that time, you can potentially cancel the transaction if you need. In a normal market here in California, that time period is 17 days. In this fun filled, wacky foreclosure market, it's quite common for the seller to lower that to 10 days. OOOPPSSSSSS. See the problem with the math? Your contingency period could effectively be up while you are waiting for "T's" to be crossed and "I's" to be dotted. Don't think for a minute the large bank that you are negotiating with as the seller gives one rip that you can't meet their time frame. At that point, there is a risk of forfeiture of your initial deposit.

The second date in all of this is the time frame you need when locking in your interest rate. Once in escrow,a typical loan could actually close in thirty days. Most lenders would lock your loan for no additional charge for 30 days. THESE are calander days.And trust me, Sundays count. With all the extra time afforded you for your own "protection", you will no longer be able to close in 30 days. Some lenders I use won't even offer a 30 day lock unless your final loan papers are drawn. Here's the gem in this one. A 45 day lock could cost you an additional .5% in your loan fees(On a $200,000 loan, that's an additional $1,000). $1,000 sure seems like a lot to protect you from an A.P.R. that most people don't know about to begin with.

In closing, there is a lot wrong with the real estate and mortgage industry. Some very much the fault of business. Some also the fault of buyers and sellers. The government did need to step up its oversight. However, it's a slippery slope when it also starts mandating how a free enterprise industry and their clients must go about day to day functions. If you are interested in buying or refinancing, please take time to familiarize yourself with the H.E.R.A law. There are some wonderful things in it. But the parts I've outlined are some potentially detrimental aspects.