What is the effect of MDIA?
Mortgage laws have always been in the spotlight, more so in recent times as the sub prime crisis has eaten into the real estate market creating losses as well as job cuts. The mortgage disclosure improvement act is an improvement of an older law which was introduced in July 2008. It was also known as the July law. The present act stipulates that banks or lenders have to necessarily follow a certain time frame before they close a home loan application. It also specifies that banks cannot change the rates as mentioned when they had given the good faith estimate to the prospective borrower. The latest version came into effect on July 30th 2009. The sudden expedition of enforcement of this law, which was initially planned to be enforced on 1st October 2009, has taken all professionals by surprise.
When you talk about the effects of such a law, it depends as to which side of the borrowing you are. If you are part of the banking team, then this law puts a bit of a control over your fluctuations. The law says that even if you were to increase the percentage rate, it should not be increases by more than 0.125%. If, by any chance, there has been a difference of more than the stipulated 0.125% between the GFE and the disclosure, then this can be challenged by the borrower, and a re-disclosure will have to be submitted. The positive effect of this law is that banks have to take atleast 3 working days for the truth in lending to be submitted and there has too be a seven day gap between the GFE and the disclosure. This gives them ample time to scrutinize all relevant papers and ensure that there are no discrepancies. This time frame has been created so that banks do not hurry up application in case of market competition, thereby risking their own stability, as happened in case of sub prime loans.
In case you are a borrower, the positive effect is that the GFE is as good as the disclosure in terms of the interest rate. There shall be no major changes and this gives you enough opportunity to plan your budget and expenses; as you need not worry about any unexpected change in the installment pattern. But the overall time frame is a deterrent, as the seven day period has ensured that the times of fast loans are over. You can no longer walk in with the application and walk out with a secure loan. You have to necessarily wait for the seven day period. There are of course, exceptions to this waiting period, but involves some documentation. If you as the borrower want to waive this waiting period due to an emergency, you need to submit proof of the emergency and give a written statement, asking for the waiver.
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