If you're in the real estate industry, you probably know about the Truth in Lending Act and Real Estate Settlement Procedures Act. However, as of August 1, 2015 there are some major changes that will be happening to both acts that might change the way you work. Even though August 1 is two months away, it's a good idea to get prepared and know what changes are coming.
What is the Truth in Lending Act?
The Truth in Lending Act or TILA was put into legislation in 1968. It mandated that there are certain things that must be disclosed to a buyer before they enter into a mortgage with a bank. These items are:Â· The annual percentage rate of the loan, Â· The length of the loan, Â· The total costs of the loan, including interest.
TILA applied to all credit cards, loans and mortgages that extend an individual a line of credit with an interest rate.
What is the Real Estate Settlement Procedures Act?
The Real Estate Settlement Procedures Act or RESPA was put into place in 1974. This act was put into place to protect buyers from abusive charges by lenders. Some lenders weren't informing their clients of the correct interest rates for the money they were borrowing. Other lenders were advertising a loan at a certain interest rate, but only if the borrower used another company that was affiliated with the lender at an exorbitant price. The second company would split the inflated price with the lender and provide a kickback at the expense of the borrower. RESPA stopped this abusive practice.
What is Changing with TILA and RESPA?
There are a few changes that are occurring with TILA-RESPA as of August 1, 2015. As of this time, the Federal Government has required lenders to provide two different disclosures for borrowers who apply for a mortgage. These disclosures (the Good Faith Estimates and Truth in Lending) provide estimates for homebuyers on how much they can afford for a loan. One of these disclosures is from TILA, and the other is from RESPA. According to the Consumer Financial Protection Bureau, the two forms are confusing and overlap. Real Estate agents usually find both forms frustrating to explain to homeowners and difficult to deal with. Thus, both forms are being combined into one main disclosure document, called a Loan Estimate. This loan estimate isn't much of an estimate, though, as the lender has to be accountable to provide the rate on the Loan Estimate within 10%. The Loan Estimate must also be provided to the borrower three days after the buyer's information is collected.
Another change that is occurring is the Closing Disclosure taking over the HUD-1 Settlement Statement during the closing of a home. The Closing Disclosure will show many of the same items as the Loan Estimate. The largest change is that this Closing Disclosure bust be given to the buyer three days prior to closing, and if any changes occur on the Closing Disclosure between those three days, the closing may be delayed.
What Does this mean for Real Estate Agents?
Most of these changes will affect lenders, so they most likely won't be happy with last-minute changes that may occur with the sale of a home. Many times real estate professionals know all too well the potential for last-minute changes during the closing of a home. While this isn't necessarily bad, lenders will most likely be skittish about last-minute changes and it could cause the closing to be delayed.
The Federal Government was interested in making more changes to lending processes, however the National Association of Realtors provided feedback and explained how these changes could harm the real estate industry. Even though these changes are small, they could prove to be a bumpy transition. The best plan is to know what is going to happen on August 1, and how you can make it easier for your clients and you.
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