New changes under the Truth in Lending Act (TILA), known as "Regulation Z", went into effect on Friday, and could have the effect of dragging out settlements. The rules, affecting mortgages and home equity lines of credit (HELOCS) for primary and secondary homes, require a disclosure and good faith estimate (GFE), but the changes add a seven day waiting period after disclosure before the lender can fund the loan, giving buyers time to ponder the disclosures.
GFEs were always required within 3 days of a loan application, but now if the annual percentage rate (APR) on the final loan changes by more than 0.125 percent, new disclosures and GFEs are required, and the 7-day cooling off period starts anew. Because a change in the interest rate or addition or reduction of points could change the loan APR, any change in mortgage terms could force the buyer to delay settlement by a week. The only exceptions will be for a "bona fide financial emergency;" presumably the agent's need for the settlement check will not qualify.
Reg Z rules were proposed by the Board of the Federal Reserve System, which governs TILA, as part of the implementing regulations for the Emergency Economic Stabilization Act of 2008 and Mortgage Disclosure Improvement Act of 2008, which passed Congress last October and July, respectively, during the waning days of the Bush administration as it found regulatory zeal in the economic crisis. Many financial institutions opposed the regulations as delay-of-game, while consumer groups supported the waiting period and the rule that exceptions be "tightly circumsribed."