Under new rules adopted by the Federal Reserve Board, beginning July 30, 2009, mortgage lending will be subject to expanded disclosure requirements. This may well be a good thing. However, until everyone gets used to it, it also may cause occasional delays in closings. First, some background.

More than a few times home purchasers have been shocked at the time of closing to discover that they will have to pay more for their mortgage than they had anticipated. This doesn't necessarily meant that the interest rate on the loan is higher than expected. What is more likely is an increase in the costs associated with obtaining the loan. They may be charged an additional ½ point on the origination fee. Or perhaps a new fee has been added for an "underwriting review" or some such thing. When that happens, the APR (Annual Percentage Rate) changes, even though the interest rate on the loan (sometimes referred to as "the note rate" or "the nominal rate") may remain the same.

Most mortgage loans are subject to disclosure rules under the Truth in Lending Act (TILA). Hence, as most buyers have experienced, early on in the loan process the borrower receives a disclosure showing both the interest rate and the APR. The APR is the important number. It shows the actual cost of borrowing.

Suppose I offer to loan you $1,000 for one year at 10 per cent. At the end of one year, you will owe me $1,100. But now suppose that I modify that offer somewhat. I propose that you will pay me a 5 point "origination fee" ($50) and that I will also charge you a $50 processing fee. Still, at the end of the year, you will owe me $1,100 for the $1,000 dollar loan.

But, have I really loaned you $1,000 at 10%? If I took my charges up front -- out of the loan amount -- then I would really be only lending you $900, even though, at the end of the term, you would still owe me $1,100. Or, if you chose to pay me the $100 in origination and processing fees first, then you would wind up having paid me $200 for borrowing $1,000. Although the numbers will be slightly different in the two cases, you still will have paid substantially more than 10% of $1,000. This is what APR is all about. (Note two things: (1) There is no single universal method for calculating APR. (2) It really gets complicated when an amortized loan is involved.) APR shows you what you are really paying.

When the surprise costs are revealed at closing, probably the APR will have increased. But, what about the disclosures? Doesn't the lender have to comply? No. The disclosures are called a "good faith estimate." There have been no clear rules either for determining when the final figures departed too much from the good faith estimate or what might be the consequences of that happening.

All that is about to change. The Mortgage Disclosure Improvement Act (MDIA) of 2008 (and as amended in October 2008) has caused revisions to Regulation Z of the Truth in Lending Act. Among other things, MDIA makes some specific new requirements regarding loan disclosures. These rules apply to federally-related mortgages under RESPA. They apply both to purchases and refinances.

(1) A borrower must be provided with an initial Good Faith Estimate (GFE) within three business days of receiving a written loan application. No fees, except for a credit report, may be imposed until then .

(2) If the final APR at loan consummation varies more than 0.125% (1/8 of one per cent) from the initial APR on the early disclosure, then the lender must provide the borrower with a new disclosure at least three business days before closing. During that three day period the borrower has a right of rescission. (For these purposes a "business day" is all calendar days except Sunday and legal holidays.) The lender may not close the loan during this three-day period.

(3) The borrower may waive the three-day waiting period if there is some bona fide personal financial emergency, such as a foreclosure about to take place. This would have to be specified by the borrower in writing. It can't be done on a pre-printed form.

As noted, all of this is probably good; but, in many cases, it is going to cause some changes in practices. Until most lenders get in the habit of staying within 1/8 of one per cent APR on their good-faith estimates, we can all expect some closings to be delayed.