Ahhhh. There is nothing I like better than the smell of federal regulation in the morning. Specifically, the pungent aroma of the Truth in Lending Disclosure Statement (“TIL”). This is the story of the TIL as it continues its journey amid the never-ending sea of regulation of our industry.
In, what I presume to be, a well-meaning attempt to educate consumers and build their confidence in the lending industry, regulators came up with a little document known lovingly as the TIL. Incidentally, the TIL makes absolutely no sense to those people it purports to educate. As loan officers and closing attorneys, we have learned creative ways to assist our borrowers in understanding the TIL. And now (drum roll, please), the regulators have messed with the TIL and are presently focusing their sights on messing with our precious HUD-1 Settlement Statement!
My initial knee-jerk reaction to the changes was an intensely negative one. I automatically assumed that the change would be for the worse. After it was rung once again through the regulatory channels, the TIL would emerge on the other side even more broken, even less informative than in its current state.
After much review, deep contemplation, and personal reflection, I came to the conclusion that the new disclosure, while not horrifying, are also not perfect. The new disclosure combines the TIL and the Good Faith Estimate (“GFE”). The resulting combined disclosure provides more information regarding the escrow account and very clearly states whether the loan has a variable or fixed rate or whether there are any penalties for prepayment of the loan. These are provisions that are very important to our borrowers and I am of the opinion that the new disclosure adequately provides and highlights this information.
What is missing from the combined TIL/GFE disclosure is an explanation to the borrower of why the amount financed is a lower dollar amount than the actual loan amount. This omission causes great confusion among borrowers and many do not understand why and how this relates to their annual percentage rate as disclosed on the TIL/GFE. Is it difficult to state that the amount financed is the loan amount applied for, minus prepaid finance charges? Many versions of the old TIL provide a breakdown of the deducted prepaid finance charges, but, in my opinion, even where such a breakdown exists, it is not clear how this relates to the “amount financed” figure. This is an egregious omission of information in my opinion.
Further, if I were charged with drafting the disclosure form, I would provide an explanation of the annual percentage rate that actually makes sense and also show how it relates to net amount financed figure. But, alas, I am not charged with such a task and so I move on to the portion of this blog post where I discuss the proposed changes to the HUD-1 format.
Rolling my eyes at their ridiculous names, I set out to review “Sassafrass” and “Mimosa” (yes, these are the names given to the two proposed updates of the HUD-1 format). With red pen in hand, I prepared to strike out at what I was sure would be glaring, horrifying problems with the proposed new format. A thorough review of the proposed changes to the HUD-1 format has produced no specific qualms from this writer. The information presented is the same as that of our traditional HUD and is broken down in a similar fashion. I’m OK with that. The red pen has been safely returned to its resting place.
In light of all of this, our task remains, as it has always been, to assist our borrowers, the consumers, our clients, through their navigation of rocky waters of the TIL. Bon voyage.
Thank you for choosing Penner Law Firm, LLC, for all of your residential real estate needs! If you wish to discuss this blog post or any other residential real estate issue further, please contact its author, Jessica N. Hansen, Esq., at 203-878-1254 or jhansen@pennerlawfirm.com or http://www.linkedin.com/pub/jessica-hansen-esq/46/79b/a4