Truth In Lending Changes – Homebuyer Mortgages
Lot’s of change sweeping through our real estate industry. This is one of the most recent, it effect Homebuyers who apply for mortgages. Most of the changes are undramatic and simply provide more time for borrowers to review their Truth In Lending statement. Here are the details. If you have any questions, give me a call – 832-797-1779
The Federal Reserve has approved new rules concerning the Truth in Lending (TIL) disclosures – effective for all loan applications taken on or after July 30, 2009. Since these rules were issued by the Federal Reserve, they apply to all mortgage lenders – whether a broker, banker, wholesaler, federal or state bank, credit union, etc.
In summary:
Prior to issuance of the 3 day disclosures, ONLY a credit report fee can be collected upfront. No other fees may be collected until AFTER the initial 3 day disclosures are issued.
A new statement will be added to both the initial and final disclosure that states “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.”
There is a MANDATORY 7 business day (defined as all days except Sunday and holidays) waiting period from the time the initial TIL is issued to time of closing. This means, if a loan application is taken on Monday AND the disclosures are issued on Monday, the earliest this loan can close is on the following Tuesday. If the loan application is taken on Monday and the disclosures aren’t given until Wednesday, the loan cannot close until the following Thursday. The ability to transfer a loan from another lender one day and close it the next day is gone.
If the final TIL changes from the initial TIL (primarily meaning the APR changes by 1/8% up or down), there is a 3 business day MANDATORY waiting period from the time the new TIL is received to when the loan can close. If the new TIL is mailed, then it is a 6 business day MANDATORY waiting period. This means a loan cannot go to closing and fees waived, loan amounts changed, rates changed, etc that would cause the APR or the finance charge to change. This is on purchases and refinances.
These new rules do not apply to non-occupied properties or HELOCs. They do apply to second homes, refinances, home equity loans.
The only waiver of these rules, that we are aware of, is an extreme financial hardship which is the home going into foreclosure. A hardship is not the borrowers or sellers are leaving town, the moving van is in the driveway, the payment is going up on an ARM loan, etc. And if a waiver was available, the initial TIL must be accurate.
This rule will cause a major change in the real estate world. You will need to allow adequate time for locks, ensure fees are accurate at the beginning of the loan application and do not change during the process, etc. Short close contracts – less than 7 days – cannot be written (unless it’s a cash transaction, then this would not apply).
The fines and penalties for violating this regulation are civil liability (lawsuits) , criminal liability ($5000 and up to one year in jail) , administration actions (cease and desist orders) and also possible forgiveness of the debt to the borrower if the lender does not follow these new rules. Our state examiners, along with HUD, will be auditing us for compliance with these rules. Our investors will check to see if we are in compliance.
We have a team of 10 people working rapidly on the solution for complying with these new rules. This new rule implementation was moved up to July 30 by the Federal Reserve, so a short time period was given to the mortgage industry for compliance. The link to the federal register to review this rule is:
http://www.federalreserve.gov/newsevents/press/bcreg/20090508a.htm
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