Revised Early Cost Disclosures Finalized by Fed

The Federal Reserve approved final revisions to the Truth in Lending Act late last week. The finalized requirements made by the Fed for mortgage loans will provide early cost disclosures to borrowers under the Mortgage Disclosure Improvement Act (MDIA), enacted in mid-2008. Under MDIA, creditors must give so-called “early disclosures,” or good faith estimates of mortgage loan costs, within three business days of receiving an application and before collecting any fees from a consumer in accordance with the Truth in Lending Act (TLA). The MDIA broadens the TLA requirement even further by requiring these early disclosures for mortgages on dwellings other than the consumer’s principle dwelling, such as a second home. The final rules also require creditors to wait seven business days after they provide early disclosure before closing the loan and to provide new disclosures with a revised annual percentage rate (APR) — and wait an additional three days before closing — if any change occurs that makes the original APR inaccurate. The rules allow a consumer to speed up the closing process in the case of a personal financial emergency like foreclosure. The new provisions become effective July 20, 2009 for all applications received from that day forward. Critics have said the push for more disclosure even before the closing table puts pressure on third-party originators like mortgage brokers that must essentially detail the commission they stand to make off the origination. Brokers say this makes competition among third-party mortgage originators impossible. HousingWire examines the House of Representatives’ most recent action to curb third-party incentive compensation involved in mortgage origination in the upcoming June magazine issue. Write to Diana Golobay.