Revised disclosure requirements under the ""Truth in Lending Act"":http://edocket.access.gpo.gov/2009/pdf/E9-11567.pdf (TILA) will become effective July 30. Some industry experts say the new rules and procedures are complex and could potentially delay the mortgage application and approval process as lenders struggle to comply.
The new regulation may be especially challenging for community banks. A recent survey by compliance consultant Wolters Kluwer Financial Services found that 60 percent of risk management and compliance professionals at smaller, regional banks cited TILA as a top regulatory concern over the next 12 months.
The company says these concerns are likely to grow given the recent resurgence in mortgage lending. Lower interest rates, less competition, and an enhanced Federal Housing Administration (FHA) loan program have all led to a spike in mortgage lending activity at community banks over the past year.
The TILA rule will now apply to all mortgages secured by a borrower’s home - primary dwellings, as well as second homes and refinance loans. Loans to investors, however, are still exempt.
Lenders are required to provide borrowers with good faith estimates of the mortgage loan costs within three business days of application. No fees can be collected before this disclosure is presented, other than a fee for obtaining the consumer’s credit history.
From the date of this ""early disclosure"" of costs, there is a seven-day waiting period before the loan can be closed.
Under the new rule, if the closing annual percentage rate (APR) increases by more than 0.125 percent, the lender must issue a corrected disclosure, with another three-day waiting period before closing the loan.