New Mortgage Rules & Disclosures to Better Inform Borrowers About Terms and Costs

An important change has been made for new mortgage disclosure forms effective July 30, 2009.  The goal is  to make mortgage terms and costs more clear to borrowers. The guidelines fall under Regulation Z, the Consumer Protection provision of the Truth In Lending law.  It is enforced by the Federal Deposit Insurance Corporation.

The new requirements apply to loan applications filed on or after July 30, 2009.  This date is about two months earlier than originally planned.

The new rules and disclosures help consumers determine if a given borrowing transaction is appropriate for them.

These new guidelines govern new apply to applications taken on or after July 30, 2009 – for 1st and 2nd mortgages – new purchases and refinances. Investor loans are exempt.

Here is what Reg Z requires (my comments in italics):

• Lenders must provide initial truth-in-lending mortgage loan disclosures within three business days of the application. If not, the borrower can back out – (borrowers could back out before this change).
• Until the borrower receives the initial (early) disclosures, lenders can’t collect any fees, except for a reasonable credit check fee. Some lenders and brokers previously collected appraisal, credit and other charges at the onset of the application – (we never collected fees upfront).
• Borrower must be given a final truth-in-lending disclosure three business days before closing.
• Lenders must give borrower a copy of the real estate appraisal three business days before the scheduled closing.
• The  lender can’t close the loan until at least seven-days after applicants have received the initial early disclosures.
• If there is a change that makes the annual percentage rate rise beyond a set level, (perhaps because of rising mortgage rates or revised information), the lender must provide revised loan cost disclosures and give the borrower an additional three-business-day waiting period before closing the loan.  This means all fees should be as accurate as possible upfront to avoid the need for re-disclosure.
• Borrowers may shorten or waive the 3‐day and/or 7‐day waiting periods for a “bonafied” personal financial emergency – but only after receiving an accurate TILA disclosure.  The Fed stated, “waivers should not be used routinely to expedite consummation for reasons of convenience.”

In many cases, these Reg Z changes, along with the previous HVCC guidelines for appraisals, will cause delays in the closing of mortgage loans.  Everyone involved in the process must be keenly aware of these changes and how mortgage closings will be affected.