In an effort to close certain loopholes and to stem predatory lending and mortgage fraud the Federal Reserve Board proposed and Congress has now approved, changes to the Federal Truthin Lending Act (TILA) and specifically ”Regulation Z”.
These changes cover mortgages secured by both primary and secondary homes. Investment loans are exempt. In addition to increased verification for self employed borrowers the new regulation imposes review or ”waiting periods” on applicant’s loan information disclosures. These changes cover both initial receipt and mandatory waiting periods when changes in the cost of the loan occur. The goal is to give borrowers a clearer picture of their loans and to avoid last minute changes and closing day surprises! Here are the specifics of the new regulations.
- The TILA and Regulation Z require that initial disclosure package (Good Faith Estimate, Truth-in-Lending, and state specific disclosures) must be sent to the applicant within 3 business days of the day the application is taken or received and that from the day of mailing the settlement or closing can not occurred for at least 7 business days.
- A business day includes Saturdays, but does not include Sundays, and recognized Federal Holidays.
- EXAMPLE: Initial Disclosures mailed to applicant on Monday, July 6. Closing may not take place until Tuesday, July 14th or after.
Re-Disclosure of Initial Documents
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If there are changes to a borrower’s loan program, loan terms, and/or APR, the initial disclosure package must be re-disclosed to the borrower prior to closing.
- If the borrower’s APR increases or decreases by more than .125% for a fixed rate loan, or by more than .250% for an adjustable rate mortgage (ARM), the initial package must be re-disclosed.
- If however the re-disclosure is personally delivered to the borrower by the Loan Officer then the closing may take place after a 3 day waiting period. If the package is re-disclosed through mail, fax or e-mail then an additional 3 business day ”in transit” period is added to bring the total waiting period, before a possible closing, to 6 days.
- EXAMPLE: Re-disclosure of initial package mailed to borrower on Monday, July 6th – closing may not take place until Monday, July 13 or after.
- If the re-disclosure package package is PERSONALLY DELIVERED TO THE BORROWER by the Loan Officer, then closing may take place in three (3) business days.
- With some restrictions borrowers may choose to waive or modify the waiting periods for financial emergencies.
So, what does all of this actually mean and what is the practical application of this new process? For most borrowers these new terms will most likely be met with little or no stress, however both buyers and agents need to be aware of these changes because of the possibility or delayed settlements. Changes in loan terms (such as percent down or the type of loan program the buyer wants to use) can cause additional waiting periods which can push back closing dates. In certain situations this could mean that a buyer may be in breach of contract or costly moving arrangements may have to be changed. While the goal of this regulation is to protect the buyer it is important to make sure these new safe guards don’t ultimately cause undue stress. With a knowledge of the new rules and a bit of proper planning a good Real Estate Agent and Mortgage Officer can keep a buyer from falling into any “Truth in Lending” Pitfalls.
Robert Albrecht is a Real Estate agent with Coldwell Banker in Washington DC. He has been in the business for half a decade and enjoys sharing his knowledge and experience with web savy consumers.
These new changes went into effect on July 30 and have not seemed to cause a big impact on closings. The biggest issue is the inability to do very quick closings of a week or less. Over the past few weeks I have seen a large number of loans close that were originated after July 30 and I have not personally noted a single delay as a result of the new regulation. It appears most lenders are now taking the stance that as long as the APR did not INCREASE by 0.125% or more you will not need to redisclose. As a result lenders are erroring on the side of caution and in many cases overdisclosing the APR computation. There are many closing cost variables that go into the APR computation, many of which are not within the lenders control and thus the reason for overdisclosure. Make sure to check with your chosen lender on what their policies are so as to insure a closing on your scheduled closing date.
Ah good to know that Banks have decided to error on the side of caution here. My experience leads me to believe that a buyer would rather have an on time closing with a lower APR than expected then one that could have gotten delayed because of the new disclosures. Especially as we enter into tight time lines for new home buyers that need the 8k credit. A delay of closing can cost thousands for dollars!