TIL We Meet Again

What you need to know about changes to the truth in lending act

By now it’s well known in the real estate industry that the Truth in Lending Act ("TILA") has been amended. There’s a great deal of concern and uncertainty about these changes, how they may affect real estate settlements and how they relate to the changes in RESPA that become mandatory on January 1, 2010.

The changes to TILA went into effect on July 30 and are intended to help a prospective borrower understand the terms and costs associated with the loan they are pursuing. Lenders are required to disclose the costs of the loan (finance charge) as a dollar amount as well as the loan’s annual percentage rate. Requiring uniformity among lenders is intended to help consumers shop among lenders for the best loan. Lenders must now provide this initial disclosure to any dwelling-secured mortgage loan that is subject to RESPA and the disclosure must be given within three business days of the lender receiving the consumer’s application.

Two major changes are encompassed by this amendment. First, TILA now applies to all loans that are subject to RESPA. Previously, TILA applied to only those transactions in which the consumer was purchasing or building his principal dwelling. Because of this change the initial – or early – disclosure must be provided when a consumer (a) buys or builds a home; (b) buys or builds a second or vacation home; or (c) refinances a mortgage with a new mortgage. This is not an exclusive list of the transactions that require TIL disclosures, it is an example of how the law has expanded. The TIL early disclosure is also required when the person (primarily) responsible for the loan is not the primary resident. The determining factor is whether the loan was extended for consumer credit. Importantly, the TIL disclosure requirements still do not apply to loans that are primarily for business purposes. Thus, investment properties in which the owner does not intend to live probably do not fall within the TIL umbrella.

The second major change is timing of the early disclosure. The timing for the early disclosure used to be within three business days after receiving a consumer’s written application or before settlement, whichever is earlier. One change now requires the early disclosure to be given at least seven business days before settlement. The final rule – the one that is now in place – requires the early disclosure to be given no later than three business days after the lender receives the consumer’s application. What’s the difference? The early disclosure must be delivered within three business days of the lender receiving the consumer’s application AND the lender may use the definition of "application" as HUD has defined it in the new RESPA rules. These changes are consistent with the new disclosure requirements that a lender must meet for providing its Good Faith Estimate ("GFE") to consumers. As with the timing requirements under RESPA, a "business day" is defined as "a day on which the creditor’s offices are open to the public for carrying on substantially all of its business functions."

Remember, though, that there is also a seven-day disclosure requirement and rights of rescission that must also be considered. The disclosure requirements in these instances use a more precise definition of "business day" which is all calendar days except Sundays, New Year’s Day, July 4, Veteran’s Day and Christmas Day. Moreover, if one of these four holidays falls on a Saturday or Sunday, the observed holiday counts as a business day. This is a change in practice and one that may be counterintuitive, however, when a buyer’s agent is working with consumers and disclosure (or redisclosure) or rescission rights are involved, be aware you may have to count differently.