The Truth In Lending Act of 1968 (TILA 1968), also known as Regulation Z was designed to protect consumers by requiring full disclosure of all lending fees to a potential buyer prior to purchase and settlement.
How Will Amended Regulation Z Changes Affect Buyers and Sellers?
Regulation Z has recently been amended, and will apply to loan applications filed on or after July 30, 2009. It’s a law and a fairly complex one at that. I included the full amended link here.The tiny print just reminds me to get my eyes checked.
“Say What?” is a fairly common response to the question of, “How are you preparing to respond to the new provisions of Reg Z?
Highlights of Regulation Z Changes Effective July 30, 2009:
Here are the simple bare bones highlights of the Regulation Z changes. And just for fun let’s start with the “fly in the ointment” provision in item 3 below, since not all readers will bother clicking to the second page (you know who you are ;-).
- Your Lender must give you a TILA good faith estimate within 3 business days after you apply for a loan. No other fees except for a credit report can by collected by your Lender at this time.
- There is a 7 day waiting period before you can close on a property, after you receive your TILA good faith estimate, known as the “early disclosure” period.
- If the annual percentage rate (APR) changes by .125 percent, your lender is required to give you, the borrower, a new TILA Disclosure AND the Lender and the Borrower must wait an additional 3 Business Days before closing the loan. As a borrower you need to know that the Annual Percentage Rate includes other costs related to settlement, not just the interest rate. Think about that for a minute, an eighth of a point up or down, and closing on the loan (and possibly settlement) must be delayed 3 business days.
- The new Regulation Z requirements pertain to mortgages on your home as well as a second home and any refinance of your home or second home.
- Consumers can waive the 3 day or 7 day waiting period for a “personal financial emergency” such as pending foreclosure, for example.
The Law of Unintended Consequences
That’s 10 business days of waiting for the Borrower. What do you think about that? See any potential problems in the day to day practice of real estate?
I’m sure that there are more concerns that I might have missed since I’m a Realtor, not a Lender or an an Attorney, but here’s a few that I can see that come under the heading of the Law of Unintended Consequences:
- If you’re the Borrower, you need to lock in at least 10 days prior to Settlement and 14 days would be safer (the law reads “after the expiration of a 7 day waiting period) or you could be unable to settle on your contract date. My advice to Buyers is talk to your lender and make sure they are informed about Reg Z, then“lock and lock early”.
- If you’re a Seller, you need to know that your firm settlement date just became a little less certain and reliable than it used to be. You may need a back up plan of a place to stay with family or friends for a few days, or a rental, just in case you have a back to back settlement for the sale and purchase of your new home.
In the real world, last minute fees prior to settlement are not uncommon. In the real world, Sellers need their proceeds to go on to their purchase settlement involving third party Sellers and Buyers. Nothing concerns Buyers and Sellers more than the coordination of successive transactions.
In the past, Sellers often left the settlement table and headed straight for the Airport for a new job and their new home closing.
What’s the Sellers tolerance for delay? What’s to stop someone with “buyers remorse” from making last minute changes to subvert the contract? Of course it’s important to have laws to protect Borrowers from unscrupulous and undisclosed lending fees, but does the amended Regulation Z leave Sellers less protected?
I’m just sayin! Real world implementation raises lots of questions. Am I a worry wart? We’ll see! It’s my job to protect my Buyers AND my Sellers.
As I know more, I’ll bring it to you. But the take away message to Buyers is, lock in early. Don’t make last minute changes that could affect the APR. Sellers, have a back up plan and be prepared for possible delays. Consult your lender and/or your Attorney.
Contact or call Judy Peterson, Realtor, 610-889-5509 with ALL your real estate questions.