Regulation Z High Priced Loan Definition Change Proposal
Posted by Alice Alvey on Feb 15, 2011 in Closing, Operations, Origination, Quality Control / Audit, TILA, Underwriting
This proposal will make several big changes to Regulation Z /TILA. You can find the text in the federal register at: 75 FR 58539. The comment period closed 12/23/10 and we are awaiting more information from the Federal Reserve Board on whether all or part of this rule will move forward. Here is a summary of the key parts of the proposal:
There is a proposed new ‘Notice of Right to Cancel’ form . The form will have a ‘tear off’ part at the bottom that is given to the borrower. Lenders will only have to give out one copy and won’t have to worry about who is entitled to two copies.
In addition, the term ‘material disclosures’ will be expanded to include information about the interest rate and terms of the loan. Today material disclosures issued with the right of rescission include the mortgage and final TIL.
Under this rule, creditors will have to respond to a borrower within 20 days if the borrower rescinds.
The proposal desires to put clear wording in place that states waiving the three day right of rescission cannot occur due to the expiration of a discount offering. This appears to imply that expiration of the interest rate not an adequate reason to waive the right of rescission.
Modifications will be subject to new TILA disclosures if the interest rate or monthly payment change, if the loan amount will increase, if the lender charges a fee or if the loan changes to an ARM or has other risky features. This is new paperwork in particular for TX and NY where modifications are used instead of refinances to avoid paying tax stamps.
Modifications would be subject to the high priced mortgage loan test and protections under HOEPA.
High priced mortgage loan:
This section proposes to have the industry stop using the APR in comparison with the Average Prime Offered Rate (APOR) for determining if a loan is a high priced mortgage loan. Instead the rule creates a ‘coverage rate’ that is not disclosed to the customer. The coverage rate is calculated using the interest rate, and origination charges as the finance charges. This will create a consistent number used by all companies to determine if a loan is a HPML. Today, we have differences in the APR calculation which means lenders are not consistent in reporting HPML’s.
Refund of application fees:
Borrowers will be allowed three days to rescind the application after receiving the TIL and will require a full refund of any fees paid. This includes the appraisal fee, even if the lender has incurred the cost.