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Revised Truth in Lending Act disclosures are now in effect. Lenders are now subject to modified disclosure requirements under the Federal Reserve Board Truth in Lending Regulation Z.
For lenders, the new rules are complex and compliance will be challenging. While real estate licensees are not attorneys and do not have to understand the full law, they need to understand the basics so that they can advise clients of potential delays under the new rules.
Key highlights of the change include*
The new requirements apply to all mortgages secured by a borrower’s home, including primary and second homes and refinancings. Investor loans continue to be exempt.
Lenders must give good faith estimates of mortgage loan costs within 3 business days after the consumer applies for a loan (early disclosure).
The lender may not collect any fees before the disclosure is provided, except for a reasonable fee for obtaining a credit report.
The closing may not take place until expiration of a 7 day waiting period after the consumer receives the early disclosure.
If the annual percentage rate (APR) changes by more than 0.125 percent, the lender must provide a corrected disclosure to the borrower and wait an additional 3 business days before closing the loan.
The APR includes not only the interest rate on the loan but certain other costs related to settlement, so it will be important for any fees that affect the APR to be as accurate as possible, as early as possible, to minimize the need for a corrected TILA disclosure.
The consumer may modify or waive both waiting periods for a documented personal financial emergency, but must receive disclosures no later than the time of the modification or waiver. Source: National Association of Realtors (NAR)
What do these changes mean for the real estate licensee and the client? They need to be aware that there can and will be delays and they need to plan ahead. The 30 day or less closing will be an exception rather than the rule and contracts should be written appropriately. They need to be aware that changes in the loan amount, interest rate or additional closing costs could change the APR and require corrected disclosures and consequently a delay in closing.
If the house does not appraise and the mortgage amount changes, it could trigger a change in the APR. If the closing date must change and prorated closing costs change, it could trigger a change in the APR. If the closing agent doesn't have the necessary documents from all involved parties causing a change in closing date, it could trigger a change in the APR. Anything that might effect a change in the APR could trigger a change in the APR and that change could bring about the need for a corrected disclosure and a delayed closing.
Real estate closing schedules are going to become more complicated as the consumer, real estate agent, attorney, lender, closing agents and others involved in closing the transaction learn to work with the new rules. The real estate agent will need to plan ahead, to stay informed of changing conditions and to be prepared for delays.
A working knowledge of the new rules, timing and good communication will be the key to a successful closing.
Additional Resources
Federal Reserve Board Final Rules and Staff Commentary (May 19, 2009)
Mortgage Banker's Association Summary of New Requirements (May 21, 2009)
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