SALT LAKE CITY, Utah /eNewsChannels/ — Curt Doman, president of International Document Services, Inc. (IDS), a mortgage document preparation vendor, warns interim change to Regulation Z, also known as the Truth in Lending Act (R-1366), could make it more difficult for lenders to accurately calculate an APR for closed end real property transactions.
As part of the changes effective January 30, 2011, payment schedules will no longer be included on the Truth in Lending disclosure form. Lenders rely heavily on these schedules to calculate APR and, without such, will be unable to calculate APR accurately to three or four decimal places. In addition, not having the payment schedule for certain variable rates or other more complicated transactions would make it impossible to calculate an APR accurately to the tolerance levels required under section 226.22.
“With the dust finally settling on the turmoil caused by RESPA reform, the last thing lenders need is more confusion regarding disclosures,” said Doman. “While I can appreciate the FRB’s efforts to make the TIL disclosure more useful for consumers, the narrow timeframe for implementation and the lack of forethought about how these changes would affect other regulations already in place are exactly the kinds of constraints that made RESPA reform so hard to swallow.”
Because lenders will most likely use software to calculate the APR and, subsequently, no longer have hard documentation in the form of the TIL disclosure to demonstrate how the APR was calculated, it is unclear how stringent regulators will be when auditing the accuracy of the APR. According to Doman, this leaves regulators with two options – accept that the APR may not be within the required tolerance levels or require lenders to keep a payment schedule on file – neither of which, he says, is in the best interest of the lender or the borrower.
“If regulators are going to accept the fact that the APR may be disclosed incorrectly, then it defeats the purpose of the updates because borrowers will not be able to accurately compare offers of credit using the APR disclosed on the TIL disclosure,” he said. “However, requiring lenders to keep additional documentation on hand creates a significant regulatory burden for the borrower, the cost of which will inevitably be passed on to the borrower in one way or another.”
About IDS Inc.:
IDS is a nationwide provider of mortgage documents and compliance. IDS services include closing documents, reverse documents, initial disclosures and fulfillment. IDS’s solution, idsDoc, is recognized in the industry for its ability to be customized to meet specific lender needs. IDS backs the system with unsurpassed customer service, cutting-edge technology, compliance and document guarantees and a solid compliance team. Lenders looking to move forward when it comes to doc prep can visit the IDS Web site at www.idsdoc.com or call 800.554.1872.
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