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Mortgage Disclosure Improvement Act - MDIA

The MDIA was enacted by the US Government on July 30, 2009 to help protect you, the consumer, from unscrupulous mortgage lenders and insure that you have the time to make good, informed choices when it comes to selecting who you will work with as well as what will be in your best interest as far as the loan is concerned.  Simply put, you the mortgage borrower need to be more informed on the loan you are contemplating because as the recent mortgage debacle has shown, many people put their trust into “honest” mortgage professionals with very alarming results.  This is a responsibility of the borrower to know your rights and overcome the natural tendency to just say “well if you think that’s OK” and leave it at that.  When you sign for a mortgage you are entering into a legal obligation and it is important you make an informed decision.

When you apply for a loan one of the first things that is required under this new legislation is that you receive pertinent disclosures before you pay any fees.  The key items you will need to see are the Good Faith Estimate(GFE) and the Truth in Lending(TIL) disclosure.

The GFE is a disclosure which most people want to look at because it lists the estimated costs which a person getting a mortgage will be expected to incur as costs for doing the loan.  This does not include any credits that might come from the Seller, broker, or lender.  Many of these fees will be foreign and not make any sense and some of them might be what we refer to as “junk fees”, but you have the right to know what the Loan Officer is figuring as costs to do the loan.  By the way, this form will be changing after January 1, 2010 and should evolve into a little more user friendly form.  The TIL is a form which shows the interest rate you are paying after subtracting the costs to do the loan.  What that means is that if you subtract those checked items from the GFE and apply the monthly payment to that new loan amount, it shows you the Annual Percentage Rate(APR).  This form is confusing in that many people confuse the interest of the APR with the actual mortgage interest rate on the GFE. Payments are calculated on the actual interest rate, not the APR and the APR will almost always be higher than your mortgage note rate.  If you ever receive a TIL  that the mortgage note rate and APR are the same be very careful because the provider is not including your closing costs in your APR which is a direct violation of federal laws. 

Here is a summary of the key points to MDIA

Upfront fees(with the exception of reasonable credit report fees) cannot be collected by any mortgage lender, banker or broker prior to you receiving your initial GFE  and TIL.  Should anybody ask you for payment of any sort before you receive your disclosures they are in violation of the MDIA.

Seven day waiting period is required from the time initial disclosures are mailed(including email) prior to closing a loan.  In other words if everything was in place the earliest that loan could close would be seven business days. 

Corrected disclosures are required if the APR for the loan is .125% or higher on a fixed rate or .25% or higher on an adjustable rate loan.  Your provider is required to provide you with updated disclosure documents in this event and cannot be closed for at least another three business days and if the revised disclosures are not signed and returned to the mortgage provider, that waiting period goes to six business days instead of three.  This is put into place to provide you adequate time to make an informed decision. 

Overall many institutions have expressed concern over the MDIA but most honest mortgage professionals welcome the opportunity to provide consumers the information in a format which is better and easier for the borrower.  This also allows the borrower to have a better understanding of what they are paying for and also reduces the opportunity for fraud.  I can’t tell you how many times somebody has told me that they had their interest rate and or program switched at the last moment and couldn’t take the time to get qualified somewhere else so wound up taking a loan they didn’t like and the dishonest providers basically had no accountability.  MDIA now has provided the ability for consumers to play on a more level field.  This may sound like a lot of extra work on your part but you have the right to know what you’re signing on to and if you use it may protect you from unscrupulous lending practices which is the whole point to it.