I’m always answering questions regarding the protections in place for mortgage loan borrowers, and as I feel that operating above board is really the only way to fly – I wanted to address one of the most powerful protections in place today – the Truth in Lending Act (TILA).
The Truth in Lending Act (TILA) dates back to 1968 and was put into place as a protection for consumers requiring full and clear disclosure of the terms related to credit transactions – including all costs involved.
The Housing and Economic Recovery Act of 2008 made some key changes to the TILA active as of July 30, 2009. Though many of these changes may not be immediately apparent to most borrowers, there are a few that change the way key processes are put into place, and some that might impact when your mortgage loan closes.
Mortgage brokers and loan officers who stay on top of regulations will be able to plan for these changes, but it’s important that you are aware of them as well – just to be sure everything with your home loan goes as seamlessly as possible.
This said, financial regulations rarely remain unchanged through the years, and the TILA is no exception.
What Changes Were Put Into Place?
The changes in the Truth in Lending Acts are mainly on the new disclosure requirements for the applied mortgage loan of the consumer. The Federal Reserve Truth in Lending Regulation applies its revised laws for loans filed and submitted on or after July 30th 2009. Most lenders find the revised version of the TILA quite complicated and challenging, oftentimes causing delays for the supposedly swift transaction between buyers and sellers.
Here are some of the main changes included in the July 30, 2009 TILA update:
1. Fee Collection Limitations Imposed: Mortgage lenders are not allowed to collect fees from consumers in excess of those fees required to cover the cost of obtaining borrower credit history, until the consumer has reviewed the Truth-in-Lending (TIL) paperwork. This paperwork includes, but is not limited to, the information found as part of the Good Faith Estimate – which discloses your loan’s annual percentage rate, finance charges, the amount financed, and the total payments you’re required to make. TILs must also be provided on refinance mortgages.
2. 7 Day Waiting Period in Effect: Home loans are not allowed to close until 7 business days after borrowers receive the TIL. For mortgage transactions, business days run from Monday to Saturday.
3. A “You’re Not Committed” Statement has Been Added: OK, so this is not the actual name of the rule, but in essence, you’re not obligated to close the loan just because you’ve received disclosure documents or have signed a mortgage application. Don’t let lenders pressure you into anything. If you don’t feel right about the deal, back away. Period.
4. New APR Change Waiting Period is in Effect: If the APR changes, a 3 day waiting period is tacked on before the loan can close. This means that if you are quoted one APR, and then that APR changes for any reason, then the lender is required to wait an additional 3 days after you’ve received the revised paperwork before they can close the loan. Each time the APR changes (which is hopefully not often at all), another 3 day waiting period goes into effect.
All in all, these changes are meant to provide borrowers with added protections. In a perfect world, a handshake would seal a mortgage deal. However, we’re just not there in today’s age.
Always demand clarity and up front disclosure from your mortgage broker. Once it’s delivered, the obligation then falls on you to read through your loan documents and decide whether the deal makes sense to you or not.
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