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Final
Reg Z Rule on Mortgage Loans Closely Followed Proposal
The
Federal Reserve Board
(FRB) closely followed the proposed rule issued in July 2008, in
issuing this rule on mortgage loans. This final rule revises the
disclosure requirements for mortgages loans and implements the Mortgage
Disclosure Improvement Act (MDIA), which was enacted in July
2008 as an amendment to the Truth
in Lending Act (Reg Z). MDIA’s purpose is to ensure that
consumers receive cost disclosures earlier in the mortgage process.
It also broadens and adds to the requirements issued by the FRB in
July 2008. The final rule also largely follows a proposal issued by
the FRB in December 2008.
This
article is a brief summary of the final rule that was effective on
applications received on or after July 30, 2009, as a refresher for
those making closed-end mortgage loans. The rule is available at http://edocket.access.gpo.gov/2009/pdf/E9-11567.pdf.
Purpose
·
To protect
consumers against unfair, abusive, or deceptive mortgage lending and
servicing practices.
·
To provide
transaction-specific disclosures early enough to use for mortgage
shopping.
Scope
The rule expands the types of loans requiring early disclosure. The
scope now includes mortgage transactions subject to the Real
Estate Settlement Procedures Act (RESPA) other than open-end,
and secured by the “dwelling of a consumer.” In addition to home
purchase loans, this expands the coverage to home refinance loans,
home equity loans (closed-end), and second homes (e.g., vacation
homes).
Early Disclosures
Early Reg Z disclosures must be delivered or mailed within three (3)
business
days of application and prior to collecting any fees other
than a bona fide and reasonable credit report fee.
A loan
cannot be closed until seven (7) business
days after providing early disclosures.
If the
APR provided in the early disclosures changes and is considered
accurate under the allowable tolerances, new disclosures must be
provided and the lender must wait an additional three (3) business
days before closing the loan.
Section
226.19(a)(4) requires that the following statement is included in
the early and corrected disclosures and that it is grouped with the
disclosures required under Section 226.18.
“You
are not required to complete this agreement merely because you have
received these disclosures or signed a loan application.”
Waivers
It should be noted that consumers can waive both the three and seven
day waiting periods if they have a bona fide personal financial
emergency [226.19(A)(3)].
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