Monday, January 24, 2011

New Truth In Lending Forms Starting January 30, 2011

Now that we are almost to the end of January, most of us who work on the loan origination industry have all of our attention fixed on the Federal Reserve Rule regarding our compensation which will take effect April 1, 2011.  We are getting constant emails for webinars and training on the new rule and how each of our lenders will comply with it, even as we struggle to pay today's bills with today's dollars.

That could be the reason that I am seeing no emails or reminders about another Federal Reserve Rule which becomes mandatory on January 30, 2011.  This is the rule requiring additional disclosure on truth in lending forms in response to the Dodd Frank Bill.

The most basic change is that the new truth in lending must disclose a payment summary for all mortgage loans, whether fixed or adjustable. The payment summary must include the initial interest rate of the loan, and if it is an adjustable rate mortgage, the maximum interest rate and payment that can occur for five years and the maximum interest rate and payment possible over the life of the loan. The truth in lending must also contain a statement that there is no guarantee that the consumer will be able to secure a lower rate by refinancing the loan. Even though the Mortgage Disclosure Improvement Act of 2008 calls for this statement only on adjustable rate loans, the new Federal Reserve rule requires that the statement be on all Truth in Lending forms for all loans.

The new form will require several new tables. For instance, on adjustable rate loans, at each scheduled rate adjustment, the form must display the payment corresponding to the increase and the earliest date at which the increase could occur. Loans that are escrowed for taxes and insurance must display the full payment with the taxes and insurance on the truth in lending. (Presently the truth in lending form displays only the principal and interest and the mortgage insurance if applicable.) The irony is that the full payment with the taxes and insurance used to appear on the good faith estimate form, but when HUD introduced the new revised form this year, they took the escrowed payment off the form which has created a lot of confusion. If the loan has mortgage insurance on it, the truth in lending form must display the mortgage insurance and the date of automatic termination.

Introductory and "teaser" interest rates must be clearly defined as such with a clause that says "You have a discounted introductory rate of _____% that ends after (period). In the (period), even if market rates do not change, this rate will increase to________%)."

While these changes may or may not be helpful to the borrower--what adult does not understand that there is no guarantee that he or she will qualify to refinance their home?--the primary issue for loan originators is that we have to upgrade our software prior to January 30, 2011 to stay in compliance.  And these upgrades are not cheap.  A subscription renewal to Calyx Point  is costing upwards of $420.00 for access to a single computer.  However,  if lenders' interpretation of the new Federal Reserve rule follows the track that they have taken on other recently enacted disclosures, the cost of not having the new forms with the proper verbiage could be loan denial--which is actually ironic since most lenders redisclose the truth in lending anyway to make sure that the APR is calculated accurately.

It seems to me that rather than completely reworking the truth in lending form, which costs all loan originators, the Federal Reserve could have accomplished the same goal with an additional mandatory printed disclosure.  Maybe the next round of disclosures should be an interactive on-line form with the following disclaimer. "Your residential mortgage loan is very expensive because excessive government regulation has greatly reduced competition and raised prices for surviving companies and those increased costs are now being passed on to you.  Please enter your zip code to locate your elected representative if you wish to complain."

Compliance is mandatory beginning January 30, so make sure that your software is upgraded and that your office is ready so that you can take applications next Monday.

Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. For more information, visit her website at


  1. Good Article. I was wondering if you could comment on how the new Rural Development Guaranteed Housing Program fee structure that will go into effect on Oct. 1, 2011 should be disclosed on the TIL. The new fee structure for Rural Housing loans is an upfront guarantee fee of 2% of the loan amount and then a .3% annual fee based on the balance on the amortization schedule (not the actual balance) calculated on a yearly basis and continuing through the life of the loan (not ending when the LTV is under 80% like FHA's MI works)? The new Rural Housing fee structure can be viewed at

  2. What does it actually mean that there is no guarantee you will be able to refinance?