Consumer Law

Reg Z Amendments Change Timing of Mortgage Disclosures

By Jeff Sovern

by Jeff Sovern

Critics of Truth in Lending have long complained about the timing of disclosures in mortgage loans: typically, lenders were not required to provide the final loan disclosures until the closing. That meant that if the interest rate, say, changed, as it often does, from the original good faith estimate, provided within three days after the consumer applied for the loan, consumers might not learn about the change until the closing, when they are unlikely to walk away from the deal.  But last month the Fed adopted new amendments to Regulation Z which change the timing rules and implement the Mortgage Disclosure Improvement Act of 2008.  See 74 Fed. Reg. 23,289 (May 19, 2009).  Under the new version of 226.19(a)(2)(ii), if the disclosures change materially from the estimated disclosures, the lender must provide corrected disclosures to be received by the consumer at least three days before consummation.  The new rules become effective July 30. 

This sounds like a real improvement over the old rules.  Consumers who have not monitored their loan terms regularly are less likely to be surprised at the closing.  In addition, consumers are more likely to pay attention to the disclosures if they arrive by themselves three days before the closing than if they are provided in a mountain of paper at the closing.  But will it facilitate comparison-shopping?  Are consumers more likely to walk away if they discover that the terms are not to their liking three days before the closing than at the closing?  I don't know.  I keep thinking of the testimony of "Jim Dough," the pseudonymous predatory lender: "I can get around any figure on any loan sheet. . . . The customers believe what I tell them."  Hearing before the Senate Special Committee on Aging on March 16, 1998, ?Equity Predators: Stripping, Flipping and Packing Their Way to Profits.?  Will predatory lenders provide enough other paper at the same time to obscure the TILA disclosures?  Or come up with some other strategy to cause consumers to ignore the forms?  Still, it's better than  the existing rules.  And regulators can provide only so much notice without risking delaying closings unduly.  Some will recall that the original version of RESPA barred loan closings until 45 days after filing of the loan application, which outraged consumers eager to move into their new homes.  Angry fans at a Green Bay Packer football game surrounded Wisconsin Senator Proxmire and chanted "Down with RESPA." 

Full post as published by CL&P Blog on June 23, 2009 (boomark / email).