Changes in consumer protection act to impact closing dates

How will the ammended Truth and Lending Act affect loan timeline?

1. If the buyer needs financing to purchase a property, the new Regulation Z (or REG Z, 226.31 & 226.32) can impact and can dictate the closing date, i.e. delayed delivery of a good faith estimate, rates have not been locked.

Mortgage Disclosure Improvement Act (MDIA’s) requirements:

• "Creditors wait seven [7] business days after they provide the early disclosures before closing the loan; and
• "Creditors provide new disclosures with a revised annual percentage rate (APR), and wait an additional three business days before closing the loan, if a change occurs that makes the APR in the early disclosures inaccurate beyond a specified tolerance [ i.e. 0.125%]." (Federal Reserve press release)

2. An increase of .125% of the APR from the initial good faith estimate or Truth and Lending (TIL) disclosure requires the lending part to revise and re-issue a new TIL to the consumer. Consumer must receive the newly revised TIL within three days before closing. However, if the lender chooses to mail the TIL disclosure, closing may occur on or after seven (7) business days after mailing.

• "Consistent with the MDIA, the final rule amending Regulation Z requires creditors to make good faith estimates of the required mortgage disclosures, and deliver or place them in the mail, no later than three business days after receiving a consumer's application for a dwelling-secured closed-end loan. Consummation [or closing] may occur on or after the seventh [7] business day after the delivery or mailing of these disclosures.
• "If the annual percentage rate provided in the good faith estimates changes beyond a specified tolerance for accuracy, creditors must provide corrected disclosures, which the consumer must receive on or before the third [3^rd] business day before consummation [or closing] of the transaction." (REG Z Docket)

As there are changes which may occur during the purchasing process, it is important to ensure that the estimated fees are accurate as possible. If the APR deviates more than .125% from the buyer’s initial TIL received, lenders must provide updated TIL and if they cannot provide it within three days prior to closing, then the closing date must be extended.

However, under personal hardship, the buyer may be permitted "to expedite the closing to address a "bona fide personal financial emergency", such as a foreclosure. (REG Z Docket).

*** Important to Note***

Lending Double Jeopardy

Some lenders may choose to add “padded” fees due to this new REG Z. The speculation is that these lenders maybe trying to:

· avoid possible delays in closing

· consider this requirement an inconvenience, which can be cumbersome when processing multiplicities of loans

· and/or avoid possible bad rating if their ability to perform is inconsistent, i.e. not able to provide good faith estimates in a timely manner.

It is assumed that they will remove the “padded” fees at closing but who is to say that they will remain honest and follow through with their good intent.

It is important that you review your HUD statement with your real estate professional or discuss it with your closing agent, i.e. escrow officer, to determine what standard fees are normally like (i.e. a general idea), what they should include, fees out of the norm, what are in the junk fees or fees disguised as something else, hidden fees.

3. A copy of the property appraisal must be provided to the consumer three days prior to closing. However, the buyer may waive this review period requirement for whatever reason.

Other changes that can influence closing timeline:

A. Changes in purchasing process can affect the APR and therefore affect the closing date.

• mortgage product (i.e. changing loan programs or types)
• closing/signing date
• loan amount
• unlocked rate
• fees by third parties, i.e. escrow or settlement agent.

B. Interest rates impact the APR. In order to get an exact APR, the buyer has to lock in their rate.

Choices to make before locking in a rate:

· determine loan program

· interest rate

· points &

· lock in length