Regulation Z Amended by the Board

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Mortgage and Lending with Primex Mortgage

The Board issued the final rules amending the Regulation Z, which Implements the truth Lending Act and Home Ownership and Equity Protection Act.  TILA or The Truth in Lending Act is aimed at promoting the informed use of consumer credit by requiring disclosures or revelations about its terms and costs. Generally, this regulation relates to each individual or business that offers credit when the credit is offered to consumers.  The credit is subject to a finance charge or is payable by a written agreement in more than four installments and the credit is primarily for personal, family or household purposes.

The Board is issuing final rules amending Regulation Z to forbid certain practices relating to payments made to compensate mortgage brokers and other loan originators. The goal of the amendments is to defend consumers in the mortgage market from unfair practices concerning compensation paid to loan originators. The rule prohibits any person from paying compensation to a loan originator for a particular transaction if the consumer pays the loan originator's compensation directly. The final rule adopts the proposal that prohibits a loan originator from steering a consumer to consummate a loan that provides the loan originator with greater compensation, as compared to other transactions the loan originator offered or could have offered to the consumer, unless the loan is in the consumer's interest. The rule provides a safe harbor to facilitate compliance with the prohibition on steering.

 A loan originator is deemed to comply with the anti-steering prohibition if the consumer is presented with loan options that provide (1) the lowest interest rate; (2) no risky features, such as a prepayment penalty, negative amortization, or a balloon payment in the first seven years; and (3) the lowest total dollar amount for origination points or fees and discount points.

The final rule covers all transactions secured by a dwelling, but excludes HELOCs extended under open-end credit plans and timeshare transactions.  HELOC stands for home equity line of credit, or simply "home equity line." It is a loan set up as a line of credit for some maximum draw, rather than for a fixed dollar amount. The new rule requires creditors and other persons who compensate loan originators to retain records for at least two years after a mortgage transaction is consummated.

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