Maybe new isn’t the word, but Regulation Z, one of the latest revised government Acts, has some changes that have gone into effect almost unnoticed by many in the real estate industry (including yours truly). While I was aware it went into effect at the beginning of August and that there weren’t going to be any “quick” settlements because of it, I was unaware of its full ramifications, until today. While not a new act, the latest changes, outlined below, are fairly significant and potential ramifications.
Now with the disclaimer out of the way let me give you the rundown. The new changes to the Truth in Lending Act, took effect on all mortgage applications made on or after July 30, 2009. Here are the key highlights of the change:
- The new requirements apply to all mortgages secured by a borrower’s home, including primary and second homes and refinancing. Investor loans are exempt.
- 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 early disclosure is provided, except for a reasonable fee for obtaining a credit report.
- The closing may not take place until expiration of a 7 day waiting period after the consumer receives the early disclosure.
- Also, if the annual percentage rate (APR) changes by more than 0.125 % (1/8th point), the lender must provide a corrected disclosure to the borrower and wait an additional 3 business days before closing the loan. 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.
- Consumers may shorten or waive the 3-day and/or 7-day waiting periods for a “bona fide Personal financial emergency” but only after receiving an accurate TILA disclosure. In the final rule’s preamble, the Fed stated that it believes waivers should not be used routinely to expedite consummation for reasons of convenience”. The Fed decided not to insulate lenders from liability even where a consumer modifies or waives the waiting periods. Therefore, do not expect lenders to honor a waiver.
The number of days given above does not include Saturday, Sunday or any Federal holidays. So, essentially, if you make a formal mortgage application today (day 0), you can’t close on that agreement until 10 business days from that application. If you haven’t locked in your rate (essentially locking in your APR, as well), and it’s less than 10 days, you may not make settlement as stated in the Agreement of Sale. If anything needs to change (mortgage amount, etc.) that would affect the APR and that moves more than 1/8%, you’re waiting 3 more days. This regulation essentially means the Agreement of Sale date on the contract may not be decided by the agreement, but by the LAW.
So, let’s look at this from the buyer perspective first. Many times a loan application is made and you decide not to lock the loan rate. That’s fine if you have 30 or more days until settlement, but what if you want a “quick” settlement. Prior lending practices allowed you to get a mortgage pretty quickly, with 2 or 3 day turnarounds (or less) not uncommon. NOT going to happen any more. If YOU and/or your mortgage professional and/or your Buyer’s agent is not on the ball you may not settle on the agreed day. If you’ve gone with “Joe’s Auto Body and Home Loans” and there’s a problem with the loan less than 10 days from settlement day, you may not be closing that day and any recourse for you or the seller is covered by the Agreement of Sale.
From a seller’s perspective, YOU and your listing agent need to be asking questions well before closing day regarding your buyer’s loan. Have they locked in their rate? If not, why and when? Is the buyer’s mortgage company reputable and able to close on the correct date? Is everything on the HUD 1 Settlement sheet final for the buyer (loan amount, etc.)? If there’s a question, a “maybe” or a “no” next to any of those questions (and I’m sure there are others), you better make plans for potential delays.
While I haven’t heard of any issues with this new regulation, yet, I’m sure there’s a case or two just waiting in the wings. I’m still not sure why there’s not as much fanfare over the potential issues Regulation Z could potentially cause and the domino effect this could have with a “problem loan” in a chain of home sales.
Without picking nits of scenarios that could occur (this post could go on all day), as a consumer (which this legislation was created to protect) you should be aware of the ramifications and how to protect yourself as a buyer or seller. If you’re under contract with an agent contact them and/or mortgage professional for guidance. Don’t have an agent or thinking about buying/selling, feel free to contact me for a no obligation, free consultation.
Related posts:
- Why did the deal fall through?
- New Housing Bill signed
- West Chester Statistics for June 2008
- Chester County Statistics for September, 2008
Article by John Lauber
My name is John Lauber and I'm a Realtor in Chester County, PA. I love living and working in this area as there is so much to do here. If you have any questions feel free to contact me. I'm happy to help.
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