By: Marsha Williams, www.mortgage-technology.com
Lenders need to understand recent legislative and regulatory changes affecting the disclosure process in order to avoid potential delayed closings and loss of originations.
The Mortgage Disclosure Information Act expands the requirements for early disclosures. The most notable requirement of MDIA is that, if the annual percentage rate provided in the early good-faith estimate disclosures changes beyond the specified TILA tolerance for accuracy under Regulation Z (one-eighth of one percent for a regular transaction or one-fourth of one percent for an irregular transaction), lenders must provide revised disclosures, which the consumer must receive on or before the third business day before consummation of the transaction.
Lenders are also prohibited from collecting any fees before the consumer receives the disclosures, except for a fee for obtaining a consumer’s credit report. Amendments to TILA’s Regulation Z to implement these MDIA changes apply to loans for which a lender receives an application on or after July 30, 2009. Lenders must ensure that their TILA disclosures and their policies and procedures are revised to comply with these changes.
Lenders must deliver or mail the early disclosures at least seven business days before consummation. If the APR contained in the early disclosures becomes inaccurate, lenders must re-disclose and provide revised disclosures reflecting the APR and other disclosures that change so that the consumer receives the revised disclosures at least three business days before consummation. The disclosures must inform consumers that they are not obligated to complete the transaction merely because disclosures were provided or because the consumer has applied for a loan.
The new rule does not apply to home equity lines of credit. The rule does, however, require that lenders give consumers early disclosures in connection with a dwelling-secured mortgage loan that is subject to the Real Estate Settlement Procedures Act, whether or not the loan is for the purpose of financing the purchase or initial construction of the consumer’s principal dwelling (which was Regulation Z’s previous requirement for providing early disclosures).
Currently, as well as prior to July 30, a lender is required to deliver or mail the early disclosures no later than three business days after the creditor received a consumer’s mortgage application. This three-business-day requirement is the “general” definition of a “business day,” which are those days that the lender’s offices are open for business.
However, now the early disclosures must also be provided for non-purchase closed-end loans secured by the consumer’s principal dwelling (such as a refinance loan) and must be provided before the consumer pays any fee, other than a bona fide and reasonable fee for obtaining a credit report. The requirements now also apply to a mortgage transaction secured by a dwelling other than the consumer’s principal dwelling.
A more precise definition of “business day,” which is all calendar days except Sundays and specified legal public holidays, applies to the seven-business-day waiting period. The precise definition of “business day” is the same as the business day waiting period for the right of rescission under Regulation Z. The seven-business-day waiting period begins when the lender delivers or places the early disclosures in the mail, not when the consumer receives or is deemed to receive the early disclosures.
If, during the loan process, the APR is adjusted due to additional/increased or fewer/reduced fees being charged to the consumer and this change results in the APR being out of tolerance, lenders must provide revised disclosures that reflect an accurate APR and all changed terms. Most lenders are providing new revised TILA disclosures rather than merely disclosing the changed terms. The closing of the loan cannot occur until three business days after the consumer receives the revised disclosures.
The more precise definition of “business day” also applies to this three-business-day waiting period. If the revised disclosures are mailed, the consumer is deemed to receive the revised disclosures three business days after mailing. These additional three days could cause a closing to be delayed, the lock-in rate to expire, the interest rate to increase, the loan being re-underwritten at a higher rate, which could result in the borrower failing to qualify and, consequently, no loan closing. For these reasons, electronic delivery of the disclosures should be considered. The three-business-day period presumption of receipt may be eliminated if lenders use electronic disclosures. A lender that delivers revised disclosures electronically or delivers them by overnight courier may rely on evidence of actual delivery (such as receipt of the documentation by electronic consent or by certified mail or overnight delivery) to determine when the three-business-day waiting period begins.
If revised disclosures have been given and the APR changes again, the lender should compare the APR at consummation with the APR in the most recently provided revised disclosures (not necessarily the first set of disclosures provided) to determine whether the lender must provide another set of revised disclosures. Revised disclosures are not required when the APR falls within the allowable tolerances. Each time there is a change resulting in an out of tolerance APR, a new set of disclosures must be provided resulting in another three-business-day presumption of receipt plus three business days prior to the closing waiting period if disclosures are mailed. Electronic delivery of the early disclosures can eliminate the three-business-day presumptive period.
If a consumer determines that an extension of credit is needed to meet a bona fide personal financial emergency, a consumer may shorten or waive the seven-business-day waiting period or the three-business-day waiting period after the consumer receives accurate TIL disclosures that reflect the final costs and terms. This waiver is similar to that allowed for waiver of the Regulation Z rescission period. To shorten or waive a waiting period, the consumer must give the lender a dated written statement that describes the emergency, specifically modifies or waives the waiting period, and bears the signature of all the consumers who will be primarily liable on the legal obligation. Preprinted forms may not be used for this purpose.
Although lenders must provide an accurate “final” disclosure before the consumer waives the seven-business-day waiting period and consummates the loan, providing the disclosure by itself does not assure that the APR (or other terms) cannot change. If the APR subsequently increases or decreases by more than the specified tolerance, the consumer’s previous waiver is no longer effective, and a new final disclosure must be provided. After receiving the new “final” disclosure, a consumer may decide whether to provide another signed waiver statement.
The statement: “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application” must be grouped together with the other required disclosures, such as the APR and finance charge, in what is commonly called “the Federal Box.” To prevent borrower confusion and to maintain consistency, lenders are including the statement in the TILA disclosures that the borrower receives at closing.
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