NEW TRUTH-IN-LENDING RULES
By Ken Janzen
New government regulations take effect July 30, 2009
The mortgage industry is evolving to help provide homebuyers better information when it comes to financing a home. The Counsel Mortgage Group® is prepared for these changes. Although the processes to fully accommodate the new guidelines are still dynamic, we comprehend the ramifications of the new requirements. This document will provide a preliminary understanding of some of the Housing and Economic Recovery Act (HERA) and Mortgage Disclosure Improvement Act (MDIA) regulations that are taking effect July 30th — particularly those that may impact closing timelines.
The Counsel Mortgage Group® is committed to working with you and our industry partners to help ensure these changes do not detract from an exceptional experience for our mutual customers. Effective communication is critical.
HERA AND MDIA Background Information
In 2008, Congress passed the Housing and Economic Recovery Act (HERA) and the revised regulations were published under the Truth in Lending Act. The regulations were written to provide a clearer, more even and fair regulation of the mortgage industry. HERA has several provisions, including the Mortgage Disclosure Improvement Act (MDIA) which amends the Truth in Lending Act requirements as they relate to initial and final disclosures. The modifications are being implemented to help prevent deceptive lending practices and to protect consumers by allowing them to be better informed – and thereby more secure – in their home financing selections.
Key Changes and the MDIA Amendments
The revisions to the Truth in Lending Act (TILA) early disclosure requirements incorporating the MDIA amendments include a number of significant changes. These changes apply to any dwelling of a consumer, including second homes. Investor loans are not affected. According to the FDIC, some the key revisions include:
- Requiring that, in addition to the already mandatory delivery or mailing of the early disclosures within three business days of receiving a consumer’s mortgage loan application, a lender must now wait at least seven business days after delivery of the initial disclosures before signing/closing the mortgage loan.
- Requiring corrected disclosures to be delivered at least three business days before signing/closing if the annual percentage rate (APR) provided in the early disclosures changes beyond the tolerances (plus/minus .125%) provided in Section 226.22 of Regulation Z. Most lenders will likely re-disclose prior to closing in order to ensure the accuracy of the APR calculation.
- Prohibiting a lender/originator from charging a consumer any fee, other than a fee to obtain a credit report, until after the early disclosures have been provided. Additionally, the consumer must be informed that he or she is not required to complete the transaction just because the consumer has received the early disclosures or applied for a loan.
- Permitting a consumer to expedite the closing of a mortgage loan subject to the early disclosure provisions only to address a personal financial emergency, such as foreclosure.
The most significant of these changes is the requirement that any revised disclosures be delivered to the consumer at least three business days prior to signing. Although creditors have always been required to re-disclose the TIL Statement (APR) to a consumer when the APR is out of tolerance under the TILA, it has typically been done at the time of signing/closing. Going forward, any re-disclosure will trigger a new three day waiting period, possibly resulting in an unintended delays.
Less impacting, is the prohibition on collecting fees until after delivery of the early disclosures. Depending on developing individual lender policies, this constraint may result in delays in the mortgage originators ability to request an appraisal.
Working Toward Timely Closings
Borrowers and Buyers –
· When possible, obtain a full credit/income approval prior to shopping for a home.
· Review the timeline and possible implications with your mortgage broker. If possible, plan for at least a 30-day close.
· Understand that your selection of mortgage product and interest rate affect the APR. Plan to lock your loan in at least 10 days prior to the date you wish to close.
· Work closely and cooperate with your mortgage broker to facilitate the final loan approval.
· Know that these new regulations are designed to ensure you have time to consider your loan selection carefully and feel 100% comfortable in moving forward.
REALTORS® –
· Make certain your buyers understand that their interest rate and mortgage product selection affect the APR. Changes made during the escrow may impact the closing date.
· Set realistic expectations upfront and throughout the transaction with all related parties in regard to potential closing dates. It will be wise to plan for at least a 30-day close.
· Discuss these provisions with your settlement agents to avoid unnecessary delays during your escrow. Accurate estimates of third party fees that may affect the APR are critical.
· Provide the title/closing agent information to your mortgage broker as soon as possible.
Committed To An Outstanding Experience
Counsel Mortgage Group®, LLC will be working closely with you to ensure you do not encounter unexpected delays in your closing. Our extensive industry experience and knowledge will prove valuable in minimizing any affect the new regulations may have on your transactions.
Since the processes needed to implement and comply with the new regulations are still under development with many lenders, we will continuously monitor the potential impact resulting from changes that may be forthcoming.
Ken Janzen is a Senior Mortgage Consultant with the Counsel Mortgage Group®, LLC. He would be happy to guide you through the new regulations. You can contact him at counselmtg@cox.net. Copyright 2009© Counsel Mortgage Group®, LLC
Tags: HERA, MDIA, Truth-In-Lending
