New Truth in Lending Law changes - July 30th

Truth In Lending Changes Take Effect July 30, 2009



Predatory lending practices played a large role in the recent global economic collapse. Those practices included funding loans with falsified information, hidden costs and charges. They also packaged subprime loans as prime loans and resold them to international investors. The resulting negative ramifications have been felt globally as the investments proved to be not what they appeared to be ... for the investor and the borrower. That has resulted in an assortment of laws and/or guidelines, Federal and State, intended to protect the consumer and the investor the latest of which takes effect on July 30th.



The new Truth in Lending Regulation (Reg Z) changes take effect for loan applications filed on, or after July 30, 2009. The new requirements apply to all mortgages secured by a primary or second home. Investor loans are exempt. Two main changes are the requirement of the lender to give a good faith estimate of loan costs within 3 business days after the loan application (early disclosure), and the lender may not now collect any fees before the disclosure is provided, except for a reasonable credit report fee.



More Reg Z changes: a) The closing may not occur until after a 7 day waiting period following the consumer's receipt of the early disclosure., b) If the annual percentage rate (APR) increases by more than 0.125 percent from the early disclosure amount, the lender must provide a corrected disclosure and wait an additional 3 business days before closing the loan. It is important to understand that the APR not only includes the interest rate on the loan, but certain other settlement costs. c) The consumer may modify or waive both waiting periods for a documented personal financial emergency, with some restrictions. d.) There is also a requirement for first lien hiolders to escrow funds for taxes and insurance, but that will be phased in during 2010.



It is important to understand that the APR can be affected by something seemingly innocent, but with the potential for major consequences. These can include an unlocked interest rate, a change in the loan amount, a product change (the loan product), rate re-lock due to market improvement, change in closing date, and changes to fees including settlement fees. Each of these items can occur innocently enough during the course of a transaction and, if too close to the scheduled closing date, can wreck havoc with the closing timing.



The changes aren't really drastic, but they have the potential to delay closings. It is important that everyone - borrower, Realtor, and lender - all pay attention to the details from the onset of the loan process to the funding. Minor changes can cause several days of delays. Delays can result in missed closing dates which can mean not only not moving on the weekend that you have arranged for with your friends and work, but can also mean a breach of contract that could cause you to lose the property (and possibly your deposit), in certain circumstances. All parties must be diligent in their efforts and communication on the loan process to minimize aggravation.



Getting a new loan? Better plan on at least a 30 day period, and be diligent during the process. The longer the process goes the more opportunity there is for an issue. As changes occur during your transaction make sure of their consequence, if any, on your loan process.

It is more important than ever that you use a Realtor, loan officer, and settlement company that are informed and that you can trust.