Mortgage Strategery: Reg Z changes

The mortgage industry is buzzing about the upcoming Reg Z changes.

	Re-disclosure is required when APR increases 1/8% (.125%) or more on a standard fixed rate loan or 1/4% (.25%) or more on an ARM or Interest-Only loan—and there is an additional 6-day waiting period before closing can occur (assuming 3 days for mail)
	There is a required 7-business day wait until closing can occur once the TIL is provided
	Rush orders may be difficult to process due to these federal regulations
	Process (including appraisal) must wait for customer to accept disclosure and terms
	Customer must be allowed to view Truth-in-Lending (TIL) and Good Faith Estimate (GFE) before collection of application fee
	Impacts both first mortgage and closed-end 2nd mortgage
	Apply to Primary and Second home occupancy types

The Regulation Z (Reg Z) changes, effective July 30, 2009, gives the consumer the opportunity to shop a loan, but as a consequence to mortgage providers, slows down the origination process and doesn't allow for last-minute closings. These revisions have, in some cases, required substantial changes to loan origination systems, procedural changes and company-wide training for sales and fulfillment personnel. The new rules will provide mortgage customers with more accurate information about loan terms and costs during earlier stages of the application process.

How this could change the way we do business

The spirit of the Reg Z change is to give more power to the consumer, encourage comparison-shopping, avoid excessive settlement costs and prevent loans that borrowers can't afford. The consumer now has the option to "shop" a loan for the best deal. But with that benefit, there will be some drawbacks as there may not be as many rush capabilities to get a loan closed.

Due to these potential delays in closing, Hometown Lending of Kirkland will now be using a 45-day lock period as the standard for quoting pricing.

How will this affect customers?

Many changes made to loan terms (including fees, mortgage type, pricing, interest rate, etc.) require the borrower receive a revised Truth-in-Lending disclosure and Good Faith Estimate and give them a 3-day review period (from the date they receive the documents) to consider the changes. As a result, any changes near a scheduled closing date may require a change in the closing date.