The Lending Issue

by Jason Porterfield

The FHA’s property-flipping rule is due to go back into effect and will prevent HUD from insuring loans on homes that had been resold in the last 90 days. The law was intended to protect investors and lenders from losses and reduce higher foreclosure rates associated with illegal rehabbers. The rule, which also harmed legitimate rehabbers, was waived in 2010, but that waiver has now ended. Estate sales, sales by government agencies and homes that are located in areas that have been declared disaster areas are excluded from the rule.

An extension of the Mortgage Debt Relief Act of 2007 that was signed into law in December is intended to provide some relief for homeowners who participated in short sales completed in 2014, according to the Internal Revenue Service. According to the rule, if a bank sells the property for less than the amount of the mortgage and the homeowner had received mortgage relief, the difference won’t be counted against them as phantom income.

A few Consumer Financial Protection Bureau regulations remain to be finalized. One that has been finalized is the integration of the Truth in Lending Act and the Real Estate Settlement Procedures Act. This “know before you owe” change takes effect on Aug. 1 and combines two required forms and applications into one in an effort to make the process easier and less time-consuming. It also effectively ends same-day approvals and closings by requiring a three-day review period for the HUD-1 form, with review periods to follow any changes that are made during the process.

The Good Faith Estimate and the initial Truth in Lending form will be phased out and replaced by the Loan Estimate, intended to provide consumers with information that will help them understand costs, features and risks associated with the loan in question. HUD-1 and the second TIL will be combined into the Closing Disclosure form intended to help consumers grasp all of the costs of the loan and which lenders must deliver to them at least three days before the loan is completed in order to give them a chance to review the details.

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