Please advise if you have experience any delays with this new regulation. Unfortunately, I have not had a closing sent this change and I would like to know it this has open up the flood gates yet.
In case you missed the previous news flash, on July 30th major new regulations went into effect that completely revise how a lender has to disclose the Truth In Lending form. The changes are a result of a provision in the Housing & Economic Recovery Act, which was passed by Congress in July 2008. I am sure that the politicians had the best intentions as they were attempting to give home buyers more timely mortgage information to help them clearly understand the loan terms before closing. However, they have completely blown it! Instead, they have taken a form that is outdated, confusing, and extremely hard to read and given it much more prominence. In fact, they have made this one form a ticking time-bomb waiting to blow up your next closing.
To understand the changes, you have to first understand that currently lenders are required to provide a borrower an INITIAL TIL at time of application and a FINAL TIL at closing. With this in mind, here is a brief overview of the 3 primary changes to the Truth In Lending Act:
1. After the lender gives the home buyer the INITIAL TIL, the loan can't close for 7 days (not counting Sunday or holidays). There is not a lot of pressure to close loans in less than a week, so this change is not going to have a huge impact on closings. It does mean, however, that moving forward it is against the law to close a loan in less than 8 days.
2. Lenders are going to be required to provide a FINAL TIL to the home buyer at least 3 business days prior to closing if the Annual Percentage Rate (APR) changes by more than 1/8th. If you don't think this is going to affect your life, then you need to think again. Up to this point, we are talking about a document that has to be signed at closing. In fact, it is common for this form to be redone three times during the closing! And, now, this same document is going to have to be prepared and given to the borrower 3 days before the loan can close! And, if the FINAL TIL changes again, the lender has to re-disclose and then wait another 3 days to close! Talk about a disaster waiting to happen! Delayed closings are already a huge issue in our industry. With this change, they are about to become even more common!
3. Lenders can't collect an Application Fee until after the INITIAL TIL has been disclosed. Of course, this provision will affect the Loan Officer much more than the Realtor, but what an inconvenience and pain in the you know what. Since the Application Fee is needed to order the appraisal, all this is going to do is to delay appraisal orders and slow down the process.
So, what if anything can you do to help minimize problems or delays associated with these TIL changes?
1. Be aware, be prepared, and be patient. Take the time to understand the changes and anticipate future problems. Everyone needs to understand that it is now harder than ever to close loans quickly.
2. Understand the fees that cause the APR to change. As the following fees change and cause the APR to change by more than 1/8%, then the FINAL TIL has to be re-disclosed: Origination, Discount Points, Application, Tax Service, Lender Doc Prep, Underwriting, Flood Cert, Transfer/MERS, Prepaid Interest, Attorney, Attorney Courier, Attorney Wire/E-Mail, and all other Miscellaneous Junk fees charged by either the lender or closing attorney.
3. Minimize last minute changes. Counsel the home buyer to lock the rate well before closing and to not change programs, loan amount, rate, etc.
4. Control the closing attorney. Working with closing attorney offices that are service-oriented and flexible is going to be critical. The fee-oriented, rigid firms that stick to their high fees are going to cause problems. So, in your contract negotiations, don't give in to just any closing attorney. Ideally, you would lead the home buyer to a great lender and then allow the lender to choose the closing attorney.