Rising interest rates have caused a renewed interest in variable rate loan activity. But while ARM business has leaped for most lenders, the higher rates have also proved to be a catalyst for the resurgent home equity loan. And amidst all this new business comes the Aug. 9 deadline that puts home equity, home improvement financing and real-estate secured mobile home lending under the regulatory umbrella of the infamous Real Estate Settlement Procedures Act. By that date, equity lenders will need to know what the changes are and how they affect their disclosure compliance programs. On that date, all lenders who make such loans must provide customers with Respa disclosures. And as a result, all equity lenders are looking at substantial expenses for achieving and maintaining compliance, says Leo-nard A. Bernstein, a partner in the Princeton, N.J., office of Reed Smith Shaw & McClay. Provided that counsel for equity lenders invest the time needed to review the required disclosures and to re-analyze compensation arrangements, equity lenders will be able to meet the August deadline. This compliance nightmare, which many institutions may still not yet be ready for, according to staffers at the Office of Thrift Supervision, was created when President Bush on Oct. 28, 1992, signed the Housing and Community Development Act of 1992. Section 951 of this statute expanded the scope of Respa from its traditional first lien, home purchase loan coverage to encompass coverage of refinances and subordinate lien residential loans. On Feb. 10, the Department of Housing and Urban Development issued its long and anxiously awaited final rule amending Respas Regulation X to cover these other loans. Among the important disclosures equity loans must now comply with include completion of the HUD-1 Settlement Statement, or the new shorter form HUD-1A Settlement Statement, on all home equity loans, refinances and third-party transactions, and which must be retained for five years following settlement unless the lender disposes of the loan. Equity lenders must also disclose broker fees as part of the good-faith estimate and HUD-1A disclosures. Any payment by a borrower or lender to a broker must be disclosed, including payments to a dealer or contractor in a third-party transaction.
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