Mortgage Disclosure Improvement Act

There was a first law enacted in July 2008 before the Mortgage Disclosure Improvement Act or MDIA was created. The MDIA was a spin off of the first law and it came into effect on July 30, 2009. The Mortgage Disclosure Improvement Act was supposed to take effect not in July 2009 but in October 2009. The early implementation of the said law by the federal government came as a surprise to all professionals such as real estate agents, brokers, banks, lending institutions and borrowers as well. The dictates the closing time span with regards to the home loan.

Before this act was implemented, the normal process of applying for a loan starts out when the commercial bank or other lending firms gives out a good faith estimate or a truth in lending to the borrower. This process is done after the borrower has filled up the standard application form. The good faith estimate only takes about three working days to be sent out by the bank to the borrower. The new law, MDIA, on the other hand, cancels out the first one stating that instead of three days, the bank should send out the good faith estimate in a minimum of seven working days instead. Also, it dictates the bank to submit a disclosure to the borrower of not more than 0.125% of the annual percentage rate. If in case the banks feels the need to change the standard annual percentage rate, then is it liable to submit a re-disclosure, which in turn could be challenged by the borrower. To challenge the bank's action, the borrower would only have to go to the appropriate bureau so his or her concern can be taken cared of.

The MDIA affects both the lender and the borrower in this situation, but the effects vary depending on which side of the borrowing you are in. If you are one of the borrowers, bad news is that you cannot process a loan in as short as three days anymore. The era of having to go in the bank with the application in hand and coming out of it with a loan is over now. The banks are well guarded and in no mood to expedite any process making them incur any kind of losses. But, even if by law, the waiting period has increased, it can still be waived. An individual can still waive the seven days minimum waiting period if he or she is in a financial emergency. The person only needs to state the financial emergency in written from and sign it, then he or she will have to pass it to the bank for approval. Now, if you are a banker or a money lender, you have to be really careful in documentation especially the GFE itself. Error in the GFE, if found out after its submission, cannot be corrected anymore. What the bankers or lenders will do is to submit a re-disclosure prolonging the process even more.

This law was enacted for the protection of the borrower and the lender. The borrower is insulated from any increase in the annual percentage rate the bank might charge and the lender is protected from making hasty decisions by any of their employees regarding loan application.