On July 30, the new Truth-in-Lending (TIL) guidelines went into effect drastically changing the processing of mortgages in this country. While it has been law for some time that borrowers must receive a Good Faith Estimate and Truth-in-Lending disclosure within 3 days of applying for a new mortgage, the new guidelines require that borrowers receive a new TIL if the APR changes more than .125% during the course of processing the loan. Re-disclosure requires the borrower to wait at least 7 business days before s/he can close. (Business days being defined as Monday-Saturday not including any Federal holidays.)
While proponents of the legislation say this protects the borrower from a ‘closing ambush’, it is also detrimental to a borrower that has a closing deadline. In the current market, many real estate transactions, because of low prices, high inventory and, often desperate sellers, contracts are written with very tight time frames. In addition, for first-time buyers taking advantage of the tax credit (which expires on 12/1/09) and are pressed to close by 11/30/09, the re-disclosure and 7-day waiting period may cause a lot of heartburn.
The idea is for regulations to protect consumers but consumer protection does not have to include cumbersome and unnecessary processing issues. Few, if any of the consumers I’ve worked with over the many years I’ve been in this business, know or understand what the APR on their mortgage is. They want to know two things—their interest rate and their monthly payment. In some cases, a more experienced borrower will also want to know the points being paid to the lender or broker.
A borrower most certainly should want to know and understand what all these terms and fees mean to their final mortgage costs and closing, but a 7-day waiting period, which could cause a borrower many logistical difficulties when moving, etc. is part of the transaction, may provide no real benefit to the consumer.
In addition to the logistical challenges, many times the borrower’s APR changes as a result of getting a lower interest rate or a reduction in points being paid than what was initially quoted at the time of application. The new regulations require the re-disclosure and 7-day waiting period even if the change is to the borrower’s benefit.
There are a number of ways to ensure appropriate re-disclosure to borrowers is made timely if interest rate or other changes affect the cost of the loan (APR). Imposing a 7-day waiting period, however, may ultimately cost the borrower on many levels if it prevents a timely closing