Even the Lowest Mortgage Rates Still Need Proper Disclosures
Regulation Z, more commonly known as the Truth in Lending Act (TILA), is a consumer protection regulation that requires proper disclosure of mortgage costs associated with the financing of a home. On July 30, 2008, the Federal Reserve Board finalized a series of improvements to these existing disclosures that would take affect by the end of July 2009. The Mortgage Disclosure Improvement Act (MDIA) of 2008 was also changed to require disclosures for certain mortgages that were not previously covered before. Specifically, the new disclosure improvements would affect "any extension of credit secured by the dwelling of a consumer"--this includes home refinance loans, home equity loans (not HELOCs), and traditional purchase money transactions.
Key Changes Affecting Most Mortgage Transactions:
- Mortgage lenders must issue a good faith estimate of mortgage loan costs within three business days of a loan application. This should include current mortgage rates, terms of the home loan, and any fees charged by the lender.
- The only fee that mortgage lenders can collect upfront within this three day period is a reasonable credit report fee.
- If a borrower's annual percentage rate (APR) changes beyond the specified tolerance (0.125% in most cases), mortgage lenders are required to reissue corrected disclosures before final loan documents are signed. Closings can occur no sooner than three business days after a corrected APR disclosure is issued.
Clearer Loan Disclosures Help Borrowers Decipher Mortgage Costs
The government has also proposed more key changes to disclosures which would further clear up common confusions, and include more prohibitions against irresponsible lending. These proposals include clearer explanations of adjustable rate mortgages, proper disclosure of comparable APRs given to borrowers with excellent credit, and stricter limitations to prevent mortgage 'steering'.
Most responsible mortgage lenders have already implemented these changes, but the new amendments should create a more defined standard in the mortgage industry. As you can imagine, even with the lowest mortgage rates in years, the proper disclosures must still be put in place to help borrowers fully comprehend the true costs of a mortgage.