By: Meril Missbach

In an effort to protect consumers, changes were recently made to improve mortgage disclosure, as part of Truth in Lending.  The official name of the new act is, “Mortgage Disclosure Improvement Act” (MDIA), and I think this is a move in the right direction to protect consumers from unscrupulous, predatory lenders.

Here are the main features of this new act:

• It defines fees that can be collected by a lender before they provide an initial Truth in Lending disclosure.
• It specifies when the lender must deliver Trust in Lending Disclosures to the borrower.
• It sets waiting period that must occur before closing can take place.
• It requires additional disclosures from the lender and additional time between the disclosure and the closing dates if the Annual Percentage Rate quoted by the lender changes by more than 0.125%.

Quite a few actions could cause an APR to change, including a change in the interest rate, loan amount, type of loan, fees charged or loan-to-value ratio. Under Truth in Lending, the lender must disclose up-front what changes have affected an ARP, so borrowers can realize how much money the lender is actually receiving for services related to the loan.

If the ARP does change, the new Trust in Lending disclosure requires a longer time period to pass before the closing of the loan, allowing consumers additional time to analyze any changes and, therefore, the time to make necessary decisions before closing. Below is a simple summary of the new timeline:

• The Trust in Lending disclosure must be delivered to the borrower 3 business days after the application is received (business days include Saturdays, but not federal holidays).
• The closing can occur 7 business days after the lender delivers the Trust in Lending disclosure to the borrower.
• If there is a change of 0.125% or more in the APR, a new disclosure from the lender is required and the closing cannot occur for another 3 business days after the lender delivers the new disclosure.

If buyers must close by a certain date, it’s recommended that they lock in loan rates 5 days before closing to minimize the possibility of last-minute delays.

I see this as a move in the right direction.  These new rules probably won’t delay many transactions, but it will likely protect unsuspecting buyers from an unwelcome surprise when it’s time to close.