Summary of the new Truth In Lending Act and Mortgage Disclosure Improvement Act

By
Real Estate Agent with The Eric Steart Group of Long & Foster Real Estate MD 586955

Many thanks to Richard Miller of Nationwide Home mortgage for summing up the new changes in the law in respect to residential mortgage transactions.  These changes could dramatically increase the time required to close a mortgage so read on.  Thanks Richard!

A summary of the new laws:

Time of Disclosures

The Truth-In-Lending Disclosure Act (TIL) along with the Mortgage Disclosure Improvement Act (MDIA) require that for residential mortgage transactions, the Initial TIL disclosure be delivered or placed in the mail not later than three business days after the creditor (Lender) receives the consumer's written application, and at least seven business days before consummation (Closing) of the transaction.  The seven business day waiting period begins when the lender delivers or places the TIL in the mail, not when the consumer receives or is deemed to receive it. For example, if written application is received on Monday, the TIL mailed on Tuesday, the borrower could not close on their transaction prior to the following Wednesday (assuming there was no federal holiday).  This is required for all closed-end loans (including seconds) secured by a consumer's dwelling including their principle dwelling, vacation home, and 2ndhome.  Exemptions to this are in case of HELOC's or applications that are denied by the lender or withdrawn by the consumer within the first three days.  Depending on the lender, this can add 4 - 6 days to any transaction and specifically limits when you may schedule and collect fees for an appraisal (see Fee Restriction below).

 Re-disclosure Requirement

Re-disclosure is required at or before loan consummation if the disclosed APR is not within an acceptable tolerance (see below) as defined in Reg Z.  Re-disclosure is also required if a variable rate feature is added.  A borrower must receive the corrected TIL no later than three business days before closing.  If the re-disclosed TIL was sent by mail, it is not considered "received" by the consumer until three business days after they've been mailed.  For example, if the new TIL is mailed on Monday, the borrower could not close on their transaction prior to the following Monday (assuming there was no federal holiday).  Adds at a minimum, 7 days to any transaction.

Tolerances

The Annual Percentage Rate on the TIL shall be considered accurate if it is not more than 1/8 of 1 percentage point above or below the actual Annual Percentage Rate. If the loan is an irregular transaction (a loan with one or more of the following features: multiple advances, irregular payment periods or irregular payment amounts other than an irregular first payment or and irregular first or final payment) with advances or irregular payment periods or amounts, the Annual Percentage Rate shall be considered accurate if it is not more than ¼ of 1 percent point above or below the Annual Percentage Rate.  A change in loan amount, lock period, interest rate, days of interest required and similar commonly changed items can increase or decrease the APR by more than .125 very quickly.  1/8th of 1% of a $400,000 loan is only $500 

Fee Restriction

A creditor may not charge a fee in connection with the application (other than a reasonable credit report fee) until the consumer has received the TIL.  This includes fees charged for appraisals.  If the TIL was sent by mail, it is not considered "received" by the consumer until three business days after they've been mailed.  For example, if the application is hand delivered on Monday and the TIL is mailed on Tuesday, the borrower is not deemed to have received the TIL until Friday.  No fees may be imposed (for an appraisal or otherwise) until after this deemed received time period.  Business Days, under the new law, are defined as all days except Sundays and Specified Legal Public Holidays.  

If you would like to read more, please use this link http://www.federalreserve.gov/reportforms/formsreview/RegZ_20090519_ffr.pdf

Comments (3)

Simon Smart
Sunstreet Mortgage, Arizona - Tucson, AZ

Great summary - thanks for passing it on Dan. It will be interesting to see what type of confusion the new legislation causes. 

Aug 24, 2009 04:44 PM
Dan Quinn
The Eric Steart Group of Long & Foster Real Estate - Silver Spring, MD
Dan Quinn

Thanks Simon,

I have talked to several loan officers here locally, one real estate attorney and a CE educator teaching on this very subject.  I am amazed right now at the different interpretations of the law and how at odds their opinions are (well, when it comes to attorneys and interpretation of the law - I guess I'm not that surprised!).  It seemed to me to be clearcut, but I am not an attorney.  One loan officer told me his bank has taken the postion that if he meets with his clients in person at his office, takes their written application and provides them with the disclosures at the same meeting, that he can collect an appraisal fee and does not have to wait the three days.  How he will prepare all the disclosures at the application time I do not know.

What have you heard?

Aug 24, 2009 11:17 PM
1~Judi Barrett
Integrity Real Estate Services 118 SE AVE N, Idabel, OK 74745 - Idabel, OK
BS Ed, Integrity Real Estate Services -IDABEL OK

This makes it easy to grasp.  Good post.  I'm reblogging to share with my clients. Thanks!

Oct 31, 2009 02:26 PM