From A To Regulation Z

Ever heard of Regulation Z?  No?  How about Truth In Lending?  Still nothing?

That’s okay – I’d be willing to bet most agents haven’t even heard of Regulation Z (sounds top secret, doesn’t it?).  Nevertheless, I received information from a mortgage professional, Tom Vanderwell, that I thought important enough it needed to be shared here.  Tom, thanks for sending me this.

First, some background.

Regulation Z is a component of a larger Act, called the Truth in Lending Act (or TILA).  The Truth in Lending Act was established in the late 1960’s to provide full disclosure of the terms and costs associated with a loan.  Ironic given today’s sub-prime mess, right? That’s for another post.  Anyway, Regulation Z is a component of TILA that essentially involves the meat of the Act, and so TILA is often referred to as Regulation Z … there, you’re up to speed.

So as of July 30 2009, there have been some pretty significant changes to Regulation Z that lenders, REALTORS and consumers should be aware of.  The changes are meant to open up the loan process for consumers, giving them the opportunity to shop for the best loan terms and avoid excessive fees.  It could be argued that real estate agents – and mortgage brokers – should have been providing a clear picture of the costs associated with a loan all along, but since that hasn’t happened we’ve got more legislation to take care of that for us.

But that’s for another post, as well.

The new changes to Regulation Z include:

  • when rates change by as little as .125% on some loans, re-disclosure to the consumer is required.  This re-disclosure will mean an additional 6-day waiting period for closing.
  • once the Truth in Lending statement is provided, there is a required 7-business day wait before closing can occur.
  • the loan process is entirely in limbo until the disclosure and terms is signed by the borrower – no loan approval, no appraisal, no nothing.

All of that makes sense, of course – a borrower should know what the costs are going to be when the rate moves up (or down), and there shouldn’t be any undue pressure on the borrower to accept a loan “because the appraisal’s already been done” or some nonsense like that.  Where borrowers – and their agents – need to be aware is in the newly implemented time frames.  Essentially, we’ve put in controls that prevent closings from being rushed through before buyers have the time to get their wits about them.  If you’re accustomed to a quick closing – say, two weeks or less – you can kiss that goodbye; closing time frames of 30-45 will be the norm, I think.

Overall, I think the proposed changes to Regulation Z are a good thing.  FULL, unbiased disclosure can’t hurt anyone.  But I do have to wonder if it’s all too little, too late.  Why weren’t these controls in place years ago?

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