Regulation Z Changes Are Here

The Federal Reserve’s new Regulation Z statutes went into effect Thursday, after more than a year of preparations by the mortgage industry. Regulation Z is a truth in lending regulation meant to protect consumers who buy higher-priced mortgages — those loans with annual percentage rates (APR) above the average prime offer rate for a comparable transaction by at least 1.5 percentage points for first mortgages or 3.5 percentage points for second mortgages. Lenders must now provide additional disclosures when their customers purchase these loans. In addition, lenders must now evaluate the borrower’s ability to repay, verify borrower income and assets, not have prepayment penalties for two years on most loans and establish escrow accounts for taxes and insurance. A number of mortgage origination software products were upgraded to provide compliance to the new Regulation Z. With prevailing rates constantly changing, determining when a loan requires the new disclosures also changes. Dallas-based mortgage software developer MRG Document Technologies (MRG) released a new product for lenders to test whether the loans they are selling to consumers meet the requirements. “Since the average prime rate changes on a weekly basis, this is a process that needs continuous attention and maintenance to remain accurate,” said MRG director of customer service Laura LaRaia. Dallas-based SigniaDocs and Minneapolis-based Wolters Kluwer Financial Services both released software upgrades for Regulation Z. Wolters Kluwer also offered clients on-site preparation training for the change. Write to Austin Kilgore.

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