Fiscal
impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC)
for standing finance committees of the NM Legislature. The LFC does not
assume responsibility for the accuracy of these reports if they are used for
other purposes.
Current
FIRs (in HTML & Adobe PDF formats) are available on the NM Legislative Website
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include all attachments, whereas HTML versions may not. Previously issued FIRs and attachments may
also be obtained from the LFC in
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SPONSOR |
Boitano |
DATE TYPED |
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HB |
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SHORT
TITLE |
Fund Requirements at Real Estate Closings |
SB |
137 |
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ANALYST |
Aguilar |
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APPROPRIATION
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Appropriation
Contained |
Estimated
Additional Impact |
Recurring or
Non-Rec |
Fund Affected |
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FY04 |
FY05 |
FY04 |
FY05 |
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NFI |
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(Parenthesis
( ) Indicate Expenditure Decreases)
LFC Files
Regulation and Licensing Department (RLD)
No
Response
Mortgage
Finance Authority (MFA)
SUMMARY
Synopsis of Bill
Senate Bill 137
removes refinancing of existing loans from the current requirement of a lender
having funds available to a third-party fiduciary (i.e. title company) at the
time of closing.
Existing statute is intended to
make proceeds of a loan available to a seller at the time of closing and
includes loans for the purpose of purchasing or refinancing real property. The
title company (closing agent) is not permitted to disburse available funds
until the deed is recorded with the county clerk.
Significant Issues
SB 137 would amend the Act to
remove loans for the purpose of refinance from the requirement. Federal Law
requires a 72 hour “right of rescission” on refinance transactions before funds
are disbursed to the borrower. The question of who receives interest on the
funds during the rescission period prior to disbursement is a potential issue.
The bill addresses this issue by removing refinance loans from the requirement.
OTHER
SUBSTANTIVE ISSUES
The Regulation and Licensing
Department (RLD) notes financial institutions release funds to a title company
(third party fiduciary), expecting a return on their investment at prevailing
interest rates from the moment of release.
Interest does not begin accruing on the loan to the borrower until the
borrower has closed on the loan and signed the mortgage documents. This timing differential between release of
funds to the title company and closing of the loan may be anywhere from several
hours to several days, depending on the circumstances. If funding is done late in the day on the
last day of a week, title companies may need to hold funds overnight. The title company will not be inclined to pay
the mortgage company interest at the prevailing rate for the interim period
that the title company holds the funds prior to closing, since this will
increase the title company’s costs.
Although the title company could invest the funds they hold as a
fiduciary in overnight funds and earn a return; that return would be lower than
the prevailing loan interest rate, which the financial institution is expecting. The title company would not be inclined to
pay the differential in interest rates to the financial institution, since that
would be an additional expense for the title company. The bill addresses this
issue by removing refinance loans from the requirement.
PA/njw