Truth In Lending Changes could be a big issue

by Tom Tousignant

in Blog, Home Buying, Mortgages, Refinancing

On July 30th, 2009, new regulations from the Federal Reserve and the FDIC regarding the Truth in Lending Disclosure, or TIL, go into effect. The effect to home buyers or homeowners that are refinancing is that there will be a minimum of 7 business days required from the time the disclosures are delivered to the borrower at application to closing of the mortgage. In addition, if the APR (Annual Percentage Rate) changes by more than 0.25% on a fixed rate loan, the borrower needs three more days to view the new disclosures.  This will hamper the ability of lenders who can close loans quickly, or of buyers who can close quickly to move into their new house.

Most importantly, it raises the bar for loan officers – sloppy paperwork at application can result in an incorrect APR calculation.  If this happens, the closing will be delayed until three business days after the correct disclosures are delivered to the borrower.

This is from the Federal Reserve:

Regulation Z (Truth in Lending)
Early Disclosure Requirements FIL-26-2009
June 1, 2009

Summary: During 2008, the Federal Reserve promulgated revisions to Regulation Z (Truth in Lending) closed-end mortgage early disclosure requirements that were to take effect October 1, 2009. However, these changes were superseded by the enactment of the Mortgage Disclosure Improvement Act of 2008 (MDIA). As a result, the Federal Reserve has revised Regulation Z to incorporate the MDIA amendments. Compliance with the revised early disclosure requirements is mandatory on July 30, 2009.

The revisions to the Truth in Lending Act (TILA) early disclosure requirements, incorporating the MDIA amendments:

  • expand the requirements to mortgage loans secured by any dwelling of a consumer. The requirements no longer are limited to a consumer’s “principal” dwelling. The early disclosure requirements also now cover refinancings and home equity loans.
  • require delivery or mailing of the early disclosures within three business days of receiving a consumer’s mortgage loan application. A lender also must wait until at least seven business days after delivery of the disclosures before consummating the mortgage loan.
  • require corrected disclosures to be delivered at least three business days before consummation if the annual percentage rate provided in the early disclosures changes beyond the tolerances provided in Section 226.22.
  • prohibit a lender from charging a consumer any fee, except to obtain a credit report, until after the early disclosures have been provided.
  • permit a consumer to expedite the closing of a mortgage loan subject to the early disclosure provisions to address a personal financial emergency, such as foreclosure.
  • inform a consumer that he or she is not required to complete the transaction because the consumer has received the early disclosures or applied for a loan.
    (See the attached supplement for a comparison of the 2008 and 2009 revisions and FIL-134-2008 for an overview of the 2008 revisions.)
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