Some closings could get a little hairy starting July 30 thanks to Reg Z of TILA

A senior lobbyist with NAR has advised us that lenders will find the new Truth in Lending Act requirements (outlined in Reg Z) a bit of a change over the status quo once Reg Z becomes effective. Some believe lenders’ ability to service a 30-day closing window could be affected, at least while they get up to speed on the new rules.

Here’s a summary of Reg Z of TILA, according to NAR’s July 6 Washington Report:

Lenders will be subject to new disclosure requirements for mortgage loans under the Federal Reserve Board Truth in Lending Regulation (Reg Z). The new requirements apply to loan applications filed on or after July 30, 2009. The new rules are complex and compliance will be a challenge for lenders. REALTORS® will want to learn the basics so they can advise clients of potential delays and the new procedures. Here are key highlights of the changes:

1. 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.
2. 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.
3. The closing may not take place until expiration of a 7 day waiting period after the consumer receives the early disclosure.
4. If the annual percentage rate (APR) increases 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.
5. 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.
6. The consumer may modify or waive both waiting periods for a documented personal financial emergency, but must receive the disclosures no later than the time of the modification or waiver.

Federal Reserve Board Final Rule and Staff Commentary (Federal Register, May 19, 2009) (PDF download)
Wells Fargo Website with Its Advice on the New TILA Requirements

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5 Responses to Some closings could get a little hairy starting July 30 thanks to Reg Z of TILA

  1. Jim Rake says:

    The Wells Fargo link provides a brief, informative and easily understood explanation of “How the new government regulations may impact your closing dates”, with a helpful illustration of the timeline.

    Timely info that will benefit my clients and business.

  2. Actually, the Fed commentary and 12 USC 226.22 both say pretty clearly that any change in APR of more than 1/8 of a percentage point **UP OR DOWN** requires redisclosure and another 3 day waiting period–not just an increase in APR as is stated above. Agents will need to coordinate closely w/ lenders to make sure this is all handled correctly.

  3. Anything that is delaying closing in this market needs to be scrutinized fully before it is put in place… just my opinion.

  4. I agree with Charles McDonald. We need to reduce the red tape so we can get the market moving again. Thanks for the great links.

  5. Pingback: VAR Leaders Digest » Blog Archive » New TILA Requirements Effective Yesterday (July 30th)

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