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Federal Reserve Board Imposes New Requirements to Regulation Z (Truth-in-Lending)

September 14, 2009 by MSI

The Federal Reserve Board (FRB) recently implemented significant changes to Regulation Z (Reg Z), which are intended to improve the disclosures consumers receive in connection with mortgage financing.

Lenders will be subject to these new disclosure requirements for all loan applications filed on or after July 30, 2009. These new rules are complex and may cause considerable challenges in regards to compliance.

Here are a few of the major highlights:

Lenders have always been required to supply the borrower with a Good Faith Estimate (GFE) and Truth-In-Lending (TIL) within 3 business days of when the consumer applies for a home loan. This is considered early disclosure. There is now a newly instituted 7-day waiting period from the time the consumer receives the early disclosures until the time he/she can close on the transaction. This waiting period applies to all purchases as well as refinances.

It is now mandatory to re-disclose these same documents if the Annual Percentage Rate (APR) increases or decreases by more than .125%. The APR includes not only the interest rate of the loan but certain other costs related to the settlement. Once the corrected disclosures have been sent, the borrower must wait an additional 3 business days before the loan can close.

It is now extremely important to have as-close-to-accurate figures as early as possible in order to avoid the possibility of delaying closing. 

Changes to loan amount, loan terms, closing date and interest rate can also affect the APR. It is essential that the borrowers or their agents make the lender aware of these changes as soon as possible in case re-disclosing is necessary.