Mortgage Disclosure Improvement Act – You Get What You Order

Pre Amble

Today, new disclosure requirements are in effect.  These requirements are being issued by the Federal Reserve, under Reg Z as mandated by the MDIA (July, 2008) as an amendment to the Truth in Lending Act.

The application of the Act leaves some guidelines unchanged, creates addition disclosure and timeline requirements and mandates new language be added to our disclosures.

If you want to read every word of the Rules and Regulations, they are published in the Federal Register, Vol.74. No. 95, dated Tuesday, May 19, 2009. It is specifically published under the Federal Reserve System, 12 CFR, Regulation Z, Docket No.-R-1340, Truth in Lending. 

Transactions Affected – All mortgage transactions on 1-4 family dwellings regardless of occupancy with one exception.  A specific exception is any mortgage transaction for a rental property that is not owner-occupied (the owner does not expect to live more than 14 days during the coming year).

Early Disclosures

A Good Faith Estimate and TIL (early disclosures) must be delivered or mailed no later than three business days after receipt of an application.  No advance deposit can be collected from the consumer prior to delivery of the early disclosures for any expense other than for the actual cost of a credit report(s).  Delivery has been defined as “three business days after mailing (or any other delivery method) unless delivered in a face-to-face interview.  If the creditor has proof of receipt (i.e. email acknowledgement of receipt, courier receipt) then the date of receipt of acknowledgement can be deemed the date the three day waiting period begins.  The same credit card can be used for the appraisal with a specific request to and acknowledgement from the consumer after the waiting period has passed.  In practice, most appraisal orders will be delayed until the seventh day after initial disclosures are mailed or on the fourth day from the date of an email or courier receipt of disclosures is dated.

Re-Disclosure

For any transaction that qualifies for Early Disclosure, re-disclosure is mandated any time the initial terms disclosed are changed to the point where the APR calculation is changed (higher or lower) more than .125% for a fixed rate transaction and .150% for any other transaction.

Any loan subject to redisclosure cannot be consummated prior to three business days from the date the creditor delivers the re-disclosures.  Refer to the Early Disclosure paragraph for clarification of delivery. 

Seven Day Rule

No loan can close sooner than seven days from early disclosure.  The determination for seven business days is defined as when the early disclosures are either delivered or placed in the mail. The final rule also stipulates the transaction can close on the seventh business day. 

Note 1:  In theory, based on the new guidelines a purchase or refinance transaction could close on the seventh business day after the receipt of an application, presuming there is no trigger for re-disclosure. 

Definition of a Business Day

For purposes of all disclosure requirements a business day is defined by this new regulation as all calendar days except Sundays and legal federal holidays.  Whether an office is open or closed does not affect the definition of a business day. 

Consumer’s Waiver of Waiting Period Before Consummation

The new regulation allows for the waiver of the waiting period prior to consummation of the transaction to expedite consummation based on a “bona fide personal financial emergency.”  On brokered transactions the wholesale lender will make the final determination as to whether a waiver is warranted based on a “bona fide personal financial emergency.”  As a matter of policy, it is doubtful any lender will allow a waiver for any reason. 

New Disclosure Language

There is a new requirement that the early disclosures contain a clear and conspicuous notice containing the following statement: “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.” 

 Epilogue

This  description of the MDIA is based on an actual reading of the act.  You can expect varied approaches to compliance based on the lender selected.  The month of August will be a “shake out” month as the ramifications and unintended consequences of the new regulation are realized with implementation. 

Choose your loan originator wisely.  You will need a diligent, seasoned, ethical professional with experience sheparding transactions through the maze of existing regulations to manage the new changes.

Hope and change, baby.  Hope and change.

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