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How To Get The Best Home Equity Loan With, Or Without, The New Disclosure Laws

[Aug 4, 2009.]


Federal Reserve Board Propose Several Changes To Truth In Lending Act (Regulation Z)
Near the end of July, the Federal Reserve Board proposed a series of significant changes to affect Regulation Z, more commonly known as the Truth In Lending Act. These proposed changes aim to improve existing disclosures for borrowers obtaining close-end mortgages and home equity lines of credit (HELOC).

Although the new disclosure improvements would affect 30 year fixed rate mortgages as well, the main goal is to bring focus to more risky mortgage features such as prepayment penalties, negative amortization, and adjustable mortgage rates. And even though many responsible mortgage lenders have already implemented some of the proposed changes, these stricter regulations will help borrowers who were previously unaware.

Key Changes For Home Equity Loans Included In New Proposal
Interestingly, most of the changes can be considered preventative, as most of the changes strive to help consumers understand the cost of credit. Compared to recent years, HELOCs attracted a large number of homeowners who treated their homes more like ATM machines since home prices were on the rise. But now that home values have dropped and credit has tightened, these same homeowners are now facing severe equity issues. To help avoid these problems in the future, the Board has proposed a series of changes to help inform potential borrowers interested in a home equity line of credit.

--Replace generic and lengthy disclosures with a standardized one-page Federal Reserve Board publication summarizing basic information and potential risks of HELOCs at application.

-- Once borrowers apply, home equity lenders will then issue new disclosures detailing the specific terms of their credit plans.

-- Provide additional protections against home equity line of credit suspensions, limit reductions, and reinstatement of existing accounts.

Additional updates to the required disclosures included clearer explanations of consumer annual percentage rates (APRs) and stricter rules to prevent mortgage lenders, or brokers, from steering consumers based on compensation interests.

Do Your Part To Get A Fair Home Equity Loan
Although the new proposal brings welcomed changes, borrowers do not have to hold off on their mortgage plans while waiting for these new disclosure laws to pass. As a consumer, asking a home equity lender the right questions will often make more sense than a lengthy set of disclosures--no matter how clear the government tries to make them appear. And as mentioned, many home equity lenders have already implemented a number of these changes to help avoid misleading their own clients. However, with or without revised disclosure laws, homeowners still need to do their own work to find the best home loan. And although some might assume home equity loans are fast and quick loans, borrowers still need to shop multiple mortgage lenders, compare mortgage quotes, and evaluate different offers using a mortgage calculator.


About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.

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