Federal Reserve Board Changes May Cause Potential Delays In Securing Mortgage Loans

Under the recently adopted Federal Reserve Board Regulation Z amendment, the timeframe for securing a mortgage may prove to be challenging for some borrowers. The new rule takes effect on July 30, 2009 and applies to loan applications filed on or after that date. Its purpose is to better protect consumers and to help promote responsible lending practices. It also sets up advertising standards and requires that mortgage disclosures are provided to borrowers earlier in the transaction.

Here are some of the key highlights:

• The new requirements apply to all mortgages secured by a borrower’s home, including primary and second homes and refinances. Investor loans continue to be exempt.

• Lenders must give good faith estimates of mortgage loan costs within three 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.

• The closing may not take place until expiration of a seven-day waiting period after the consumer receives the early disclosure.

Consumers may shorten or waive the three-day and/or seven-day waiting periods for a “bona fide personal financial emergency,” but only after receiving an accurate Truth in Lending Act (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.

If the annual percentage rate (APR) changes by more than 0.125 percent, the lender must provide a corrected disclosure to the borrower and wait an additional three 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.

Ryan J. Tucholski, CEO

Greater Rochester Association of REALTORS®

Chuck D. Hilbert, President

Board of Directors

Greater Rochester Association of REALTORS

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