Changes to the Truth in Lending Act (TILA) now require a seven-day waiting period (incorrectly reported by the New York Times as a three-day waiting period) in which a lender making a loan secured by a principal residence, both purchase and refinance, must make early disclosures to a borrower before loan documents can be processed. A three-day waiting period will commence, and new disclosure documents must be issued to the borrower if interest rates change before the closing date.

This will add delays in loan processing, a procedure already beleaguered by delays. This added delay has the potential to jeopardize closing dates. In the event that a borrower’s closing date is in jeopardy, he can apply for an emergency waiver of the waiting period(s).

first tuesday take: Lenders want to move fast, because they want to crank out loans. That is how they make money.  In today’s conditions, borrowers are cautious and want to move more methodically so they can get a better deal.  This is more evidence of the antithetical interests of lenders and borrowers. There will always be political pressure from both sides – lenders versus mortgage borrowers — for preferential political treatment. But asymmetric information held by lenders or borrowers is not a good thing. Loans need to be free of this corruption for both lender and borrower if the real estate market is to avoid another price meltdown like the recent one.

Lenders got used to being progressively more coddled by the government every year since 1980, a historically bad thing for everyone since we are taxpayers who cover the socialized “losses” created by deregulation. Lenders are groaning as laws are now leaning back towards protecting the interests of borrowers and taxpayers.

For more information on TILA, stay tuned for our pending first tuesday article on changes to Regulation Z.

Re: “New Law May Cause Delays for Borrowers,” from The New York Times.