What is the Effect of Federal Mortgage Disclosure Improvement Act (MDIA)

The federal mortgage disclosure improvement act or MDIA, came into effect on July 30th 2009. This is a particularly important law that all banks, lenders as well as agents should know about, as it governs the way in which the business of applying and confirming a business loan is conducted. This is an amendment to the previous Truth in Lending Act, which had been used by lenders and banks, similar to the good faith estimate; which was normally given by the banks to the borrower. The rule creates a slower pace for closing of home loans. For borrowers who were planning to close their deals quickly, this rule comes as a dampener.

As per law, the MDIA stipulates that the borrower should receive a disclosure from the bank, within seven days of having received the good faith estimate. The annual percentage rate as specified in the disclosure cannot be increased by more than 0.125% as mentioned in the good faith estimate. The entire process starting from the good faith estimate has to take a minimum of seven working days, excluding Sundays and holidays. This is a law that has taken all banks and lenders by surprise, as the law was supposed to come into effect from 1st Oct 2009, but has been expedited and put into circulation earlier. In case there is a change in details from what was specified in the GFE as to what has been specified in the disclosure, then it would require a re-disclosure by the bank.

This law has different consequences for different people. As for banks and lenders, this law is a specification that ensures that they have no way to take a borrower for a ride. The good faith estimate that the have to furnish at the beginning has to take care of all the details and there is no room for any faults. If the bank does commit any mistake, they literally have no chances of rectifying it later, and hence will end up paying badly for their mistakes. As for borrowers, the era of “walk in with application and walk out with a home loan” is over. The process has been made lengthier than earlier, as far as time is concerned. This is to make sure that it gives banks enough time to scrutinize all aspects related to the loan, giving a lesser margin for error.

The law basically acts as a watchdog on both the bank as well as the borrower. Under the MDIA Rule, a consumer may modify or waive the seven-business-day waiting period if the consumer has a bonafide personal financial emergency that must be addressed before the end of the waiting period. To modify or waive the waiting period, the consumer would need to provide a signed and dated written statement that describes the emergency that has prompted him to waive the period.