| The Truth-in-Lending
Act (TILA) is a federal law enacted to promote the informed
use of consumer credit by requiring creditors/lenders
to disclose various terms and conditions of credit. Regulation
Z and the Official Staff Commentaries which interpret
it are issued by the Board of Governors of the Federal
Reserve System to implement the TILA. The Federal Trade
Commission enforces the TILA and Regulation Z. The
TILA requires a creditor to be responsible for furnishing
certain disclosures to the consumer before a contract
for a loan is made. With respect to real estate loans,
creditor includes a person or company who regularly
(2 or more per year or 1 or more per year through a
mortgage broker) extends credit for loans secured by
a dwelling, including a mobile home or trailer (if used
as a residence), and the credit extended is subject
to a finance charge or payable by written agreement
in more than four installments, excluding the down payment.
Exemptions from the TILA with respect to real estate
loans include, among others:
• credit extended primarily for business, commercial,
or agricultural purposes; or,
• credit extended to other than a natural person.
Regulation Z requires that creditors disclose the following
items for real property secured loans. The first four
disclosures must include simple descriptive phrases
of explanation similar to those shown in italics:
• Amount financed - The amount of credit (principal
amount borrowed less prepaid finance charges includable)
provided to you or on your behalf;
• Finance charge - The dollar amount the credit
will cost you;
• Annual percentage rate - The cost of your credit
as a yearly rate;
• Total of payments - The amount you will have
paid when you have made all the scheduled payments;
• Payment schedule - The number, amount, and timing
of payments;
• Identity of the lender/creditor making the disclosure;
• Written itemization of the amount financed,
or a statement that the consumer has a right to receive
a written itemization, and a space in the statement
for the consumer to indicate whether the itemization
is requested;
• Variable interest rate and discounted variable
rate disclosures, including limitations and effects
of a rate increase and an example of payment terms resulting
from the increase (may be accomplished by giving the
consumer the "Consumer Handbook on Adjustable Rate
Mortgages" or a suitable substitute);
• Demand feature of the loan excluding borrower
default or due-on-sale clauses, except as noted in Item
16 below;
• Loan prepayment penalties and whether such penalties
are charged by the lender/creditor or, if uncertainty
exists, a statement to that effect and whether any prepaid
finance charge is subject to rebate;
• Late payment charge stated either as a percentage
or a dollar amount;
• Description of the security interest which will
be retained by the lender/creditor as security for the
loan;
• Insurance and whether premiums for coverage
are included in the finance charge;
• Certain security interest charges or fees to
be excluded from the finance charge, such as taxes or
other fees paid to public officials, or the premium
for insurance in lieu of perfecting the security interest
(if subject to RESPA, the required RESPA statement is
sufficient disclosure);
• Specific reference to terms of the contract
related to nonpayment, default, acceleration, or prepayment
penalties;
• In applicable transactions, a statement that
a due-on-sale clause or other conditions about the loan
assumption policy are contained in the loan documents
and a statement whether the lender/creditor will allow
subsequent buyers to assume the remaining obligation;
and,
• Whether there is a required deposit by the borrower
as a condition of the loan and a statement that the
annual percentage rate does or does not reflect the
effect of any such required deposit.
Note: If the deposit is any kind of fee or charge collected
by the mortgage broker and not the lender, California
law requires that the broker have an "advance fee"
contract pre-approved by the Real Estate Commissioner,
except for advance payment of appraisal and credit report
fees collected by the broker for payment to third parties.
The right to rescind a real estate loan applies to
most consumer credit transactions in which the lender/creditor
will acquire or retain a security interest in the borrower’s
principal dwelling. The lender/creditor must provide
each borrower who is entitled to rescind with a written
notice of this right. The borrower has the right to
rescind without penalty until midnight of the third
business day (Sundays and federal holidays excluded)
following the later of these events:
• consummation of the loan transaction;
• delivery of all material truth-in-lending disclosures;
or,
• delivery of the notice of the right to cancel.
Certain real estate loan transactions are exempt from
rescission under Regulation Z, including: a residential
(purchase) mortgage; refinancing or consolidation by
the same lender who currently holds the loan secured
by the principal dwelling, provided no "new"
money is advanced; any transaction in which a state
agency is a creditor; loans for vacant lots or vacation
and retirement homes (not the principal residence of
the borrower); and a business-purpose line of credit
even though secured by the borrower’s dwelling.
The TILA was amended in 1994 with respect to certain
loans, other than purchase money loans, secured by the
borrower’s principal dwelling. In these "high
rate/high fee" loan transactions, also known as
"Section 32" loans, the TILA now places some
additional restrictions on creditors, requires more
disclosures, and gives borrowers more cancellation rights.
The amendment defines a creditor as someone who, in
any 12-month period, originates more than one high rate/high
fee loan. Also, any such loan arranged by a mortgage
broker is subject to the new requirements. A high rate
loan is one in which the annual percentage rate (APR)
exceeds by 10 points or more the yield on Treasury Securities
having a similar term. A high fee loan is one in which
the total points and fees exceed the greater of 8% of
the loan amount or, as of January 1, 1999, $441.00 (adjusted
annually on January 1 based on the change in the Consumer
Price Index).
Federally related senior and junior loan transactions
for the financing of the initial purchase, or construction/take-out,
or refinancing of owner and non-owner occupied residential
property of one-to-four units are subject to the Real
Estate Settlement Procedures Act (RESPA). Borrowers
of loans subject to RESPA are entitled to receive an
advance truth-in-lending disclosure from the lender/creditor.
The purpose of the advance disclosure is to give the
borrower an opportunity to compare the loan terms being
offered to the terms available from other lenders/creditors.
The TILA also includes detailed requirements for the
advertising of consumer credit.
15 U.S. Code 1601 et seq.; 12 Code
of Federal Regulations 226 et seq.
Contact
us for more info on Saratoga CA Truth in Lending Disclosures |
Saratoga
MLS Search 
