New “Reg. Z” Rules Could Slow Closings

July 29, 2009 by Robert Freedman, Senior Editor, REALTOR® Magazine

Starting tomorrow, July 30, you could see transactions slowed as lenders try to navigate changes to rules (”Reg. Z”) on consumer disclosures under the Truth in Lending Act (TILA). By being aware of new time pressures lenders are under, you can help your clients understand what’s going on if transactions you’re working on get delayed prior to closing.

Here’s what’s happening under these “Reg. Z” changes:

Within three days of taking a loan application, lenders must give borrowers the Truth in Lending Act (TILA) disclosure and the Good Faith Estimate (GFE), then give borrowers a mandatory seven-day waiting period before the transaction can go to closing. Both the TILA disclosure and the GFE are required now but without the constrained timeline. Borrowers can elect to waive that seven-day holding period, but the Federal Reserve, which oversees TILA, says the waivers are not for the convenience of borrowers; they’re only to accommodate borrowers in the event of a financial emergency.

There’s another requirement: If the final annual percentage rate (APR) differs from the APR on the GFE by at least 0.125 percent, then another mandatory holding period of three days kicks in.

This could be a problem if the final APR isn’t known until just before the scheduled closing. You could have a situation in which the family has the moving truck all loaded only to learn the day before closing that the APR is different by at least 0.125 percent from the APR on the GFE.

Suddenly the closing can’t happen as scheduled.

Until lenders start operarting under the new rules, it’s unclear if delays will be the reality. But you should know about the new rules in any case. You can look at them yourself in the Federal Register. You can also look at an NAR summary on REALTOR.org.

The rules apply to primary homes and second homes; they don’t apply to investment properties. There are other details you should know. The NAR summary can be helpful.