Changes to the Truth in Lending Act (TILA), the most recent additions to a series of patchwork fixes for the battered mortgage industry, take effect at the end of this month and will likely derail the familiar workflow for mortgage lenders and brokers.
Under the new FDIC requirements, dubbed “Regulation Z,” mortgage lenders must mail early disclosures within three days of receiving the applications. Lenders must also wait seven days after delivery of those disclosures before consummating the loan.
If a disclosure must be corrected, then the lender must wait an additional three days for the new terms to ship, and then another seven days before closing the loan.
According to Ruth Dillingham, co-chair of the Massachusetts Mortgage Bankers Association’s (MMBA) compliance committee, the newly required and regimented disclosure timing may actually inconvenience the very consumers the law is meant to protect.
“Maybe [the new disclosure schedule is] not the end of the world in first blush, but what if [the consumer’s] rate lock has expired, or what if [their] purchase and sale agreement is up today?” Dillingham said. “You can see where this might be a problem.
“That’s going to change the way some lenders do business,” she said. “As [they] get close to that closing day, [they’re] going to have to rework [their] work flow, to consider what happens if [they] have to redisclose.”
Another Day, Another New Form
Regulation Z’s compliance date is July 30, and it represents another in a long list of new regulatory legislation the mortgage industry has to deal with. The new disclosures require a new form and a new set of procedures for lenders to learn, on top of the Real Estate Settlement Procedures Act changes to be enacted by January, and new training for the Red Flags data theft procedures that go live starting Aug. 1.
The original date for compliance was scheduled for Oct. 1, but the changes were superseded by the passage of the Mortgage Disclosure Improvement Act of 2008, and the FDIC bumped up the date.
“This isn’t necessarily something that people didn’t know was coming, it’s just coming a little sooner than everybody expected,” said Jon Skarin, director of federal policy at the Massachusetts Bankers Association. “There is obviously a lot of new regulations coming, any time you have the type of crisis in lending that we’ve had over the last several years, the response will be people trying to fix some of the problems. It’s extremely busy for people who deal with this stuff on a day-to-day basis.”
TILA may also represent a role reduction of the mortgage broker, as the disclosures are written communication between the lender and the consumer, according to Dillingham. The broker who has shopped around for favorable rates for their customer will have to stand by, powerless, while the lender is forced to comply with the new disclosure/consummation schedule.
“You could have a situation where the consumer’s only contact is with the broker, and the lender says, ‘I don’t care about your purchase and sale agreement, I need to redisclose and you can’t close for another seven days,’” Dillingham said.
Kevin Cuff, executive director of the MMBA, said the rapidly changing rules, regulations and compliance dates will likely bring a bumpy few months for mortgage lenders and brokers.
“There is a daily regimen of changes that are coming in all elements in the industry,” Cuff said. “It adds more confusion and more frustration in an already frustrated industry.”
Odds, Ends
The law expands the TILA requirements to loans for any house, not just the principal home of the consumer. It also prevents lenders from charging any fee, except for the cost of a credit report, before the early disclosure is provided.
The law can be bypassed if the mortgagee can display a “personal financial emergency,” such as foreclosure.
Dillingham said personal financial emergency does not include poor planning and bad timing, such as the prospect of paying late fees for other financial commitments.
