There have been many changes to lending practices in the past 12 months and there continue to be more changes. This morning our office met with representatives of Central Bank of Lake of the Ozarks and Land Choice Title Company to discuss the details of the Regulation Z enacted earlier this year. Below is a summary of what Regulation Z is; this description was copied from the FDIC website.
“During 2008, the Federal Reserve promulgated revisions to Regulation Z (Truth in Lending) closed-end mortgage early disclosure requirements that were to take effect October 1, 2009. However, these changes were superseded by the enactment of the Mortgage Disclosure Improvement Act of 2008 (MDIA). As a result, the Federal Reserve has revised Regulation Z to incorporate the MDIA amendments. Compliance with the revised early disclosure requirements is mandatory on July 30, 2009.”
Simply put Regulation Z was implemented as a protection to borrowers of money for the purchase of real estate. Regulation Z mandates specific disclosure periods that lenders must give to their clients based on the type of loan that the borrower qualifies for and what the costs of that loan is.
During the years in which real estate sales was setting record numbers there were a number of times in which borrowers would enter into a contract to purchase a piece of property and would then go about obtaining financing. Before Regulation Z borrowers had time in which they could shop lenders rates and decide on which loan was the best for them. This was not a problem, the problem came from the activities of some lenders prequalifying the borrower for a loan and never fully explaining the type of loan that they were being qualified for or the cost of generating that loan. At the closing table borrowers would discover that they were not being given a 30 year fixed loan; it may be an Arm loan or any other type of loan with huge closing costs. Regulation Z is meant to eliminate that type of lending practice. The lender is required to make up front disclosures regarding the type of loan that the borrower is qualified for and what that loan will cost them.
What does all this mean to the borrower? Obviously this is a very good requirement. This will protect borrowers from being caught off guard at the closing table and allow them to make educated decisions on the type of loan that they are obtaining. The only down side that borrowers need to be prepared for is the loss of time to shop lenders for the best rates. The average closing time line on a piece of residential property at the lake is 30 days and some times less. As a part of minimum disclosure time lines if a borrower intends to execute a contract and then shop lenders there will not be enough time to execute all of the minimum disclosure time lines once you have selected your lender.
John Farrell Real Estate recommends that every individual who is considering purchasing a home should shop their lenders before executing a contract to purchase. Take the time to speak with banks and mortgage brokers to determine what you are qualified to purchase, what their fee’s are and what rate they can qualify you for.
The other advantages to being prequalified are that you know what you are capable of purchasing. Too many times as a buyers’ agent I have assisted individuals who believed they were qualified to borrow $$$ and once we negotiated a contract and they applied for a loan we discovered that they only qualified for $$. This resulted in time lost for the buyer, their Realtor, the Realtor assisting the seller and the seller. In addition sellers will likely give more credibility to a buyer who has been prequalified for a loan.
If you have any questions regarding Regulation Z and how it affects you feel free to contact myself or any other agent with John Farrell Real Estate Co.
