The new changes to the Truth in Lending Act (TILA) and Regulation Z, which took effect on July 30, 2009, only change responsibilities for lenders and not for Realtors®; however it is important to understand these changes and how they may affect the timeframes for lenders to process loans.
Under the Federal Reserve Board Truth in Lending Regulation (Reg Z) lenders will be subject to new disclosure requirements for mortgage loans filed on or after July 30, 2009.
The new rules are complex and compliance will be a challenge for lenders. NAR has released the following information on these new rules so that Realtors® can advise clients of potential delays and the new procedures. Here are key highlights of the changes:
- The new requirements apply to all mortgages secured by a borrower’s home, including primary and second homes and refinancing. Investor loans continue to be exempt.
Lenders must give good faith estimates of mortgage loan costs within three 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 seven-day waiting period after the consumer receives the early disclosure.
Consumers may shorten or waive the three-day and/or seven-day waiting periods for a “bona fide personal financial emergency,” but only after receiving an accurate TILA disclosure. In the final rule’s preamble, the Fed stated that it “believes waivers should not be used routinely to expedite consummation for reasons of convenience.” The Fed decided not to insulate lenders from liability even where a consumer modifies or waives the waiting periods.
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.