All real estate loans should be completed through a closing process with a licensed escrow company and provide for a policy of title Insurance . The lender or mortgage broker handles the regulatory compliance issues and underwriting , but escrow and title handle the escrow instructions and settlement procedures and closing statements . Escrow agents have a dual fiduciary between a buyer / seller and a borrower / lender . Borrowers and lenders need to read the narrative escrow instructions , coverages , exceptions , and exclusions to the policy of title insurance . Exceptions and exclusions are things not covered by the polity of title insurance .
For the Technicallyminded ?
Regulation Z was the Federal Reserve Board regulation that implemented the TruthinLending Act ( TILA ) of 1968 . This was all part of the Consumer Credit Protection Act of 1968 . The act ’ s major goal was to provide consumers with better information / disclosures about the true cost of credit , including a calculation of annual percentage rate ( APR ). APR was calculated to include all costs of borrowing , including the interest rate and fees charged . Lenders were required to disclose interest rates in writing , give borrowers a chance to cancel ( threeday right of rescission ), and provide clearly written disclosures about the loan terms and costs . The intent was to protect consumers from misleading practices by some real estate lending participants . The purpose was so that the consumer could compare total costs between different lenders . Regulation Z and Truthin Lending ( TILA ) are often used synonymously .
An amended Section 32 of Regulation Z was created as part of the Home Ownership and Equity Protection Act of 1994 . It amended TILA by establishing requirements of certain loans with high interest rates and high fees . This provided for additional requirements to disclose loan terms and annual percentage rates for the borrower ’ s primary residence , or consumer purpose . Lenders were not able to charge more than 10 % above the rates of Treasury securities of comparable maturity . Lenders could not charge points and fees of over $ 435 or 8 % of the total loan amount , whichever was greater . Other prohibitions were as follows :
All balloon payments where the regular payments do not fully pay off the principal balance and a lump sum payment of more than twice the amount of the regular payments is required for loans with less than fiveyear terms . There is an exception for bridge loans of less than one year used by consumers to buy or build a home : in that situation , balloon payments are not prohibited .
Negative amortization , which involves smaller monthly payments that do not fully pay off the loan and that cause an increase in the total principal debt .
Default interest rates higher than predefault rates .
Rebates of interest upon default calculated by any method less favorable than the actuarial method .
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