New Loan Disclosure Rules May Potentially Affect Close of Escrow
ByMark Richards
Starting July 30, 2009, if the APR on an initial Good Faith Estimate is no longer accurate ( within a 0.125% range ) at close of escrow, a lender must generally provide a residential borrower with a new disclosure and a three – day right to rescind before consummating the loan. REALTORS are forewarned that, because of this new three-day waiting period, a lender’s failure to timely provide corrected disclosures has the potential of delaying funding of the loan and close of escrow.
This new requirement is part of the Mortgage Disclosure Improvement Act (MDIA) implementing new loan procedures to protect borrowers and foster greater transparency in mortgage lending. For loan applications submitted on or after July 30, 2009, the new MDIA changes to the Truth in Lending Act are generally as follows:
- Applicability: The new MDIA rules pertain to federally – related mortgage loans covered under RESPA and secured by a consumer’s dwelling. The rules apply to both purchase and refinance loans.
- Early Disclosures: A lender must provide a borrower with an initial Good Faith Estimate within three business days of receiving the borrower’s written loan application as specified. For this provision, a “business day” is generally defined as day on which the lender’s offices are open for business.
- Upfront Fees Restriction: Neither a lender nor any other person may impose an upfront fee on the borrower (except for credit report) until the borrower has received the early disclosures in person or, if mailed; three business days after the early disclosures are mailed. For this rule, a new “business day” is defined as all calendar days except Sundays and legal public holidays as specified.
- Seven-Day Waiting Period: A lender must wait seven business days after providing the early disclosures before consummating the loan. For purposes of this waiting period, a “business day” is defined as all calendar days except Sundays and federal legal holidays as specified. A borrower may waive the waiting period in writing in case of personal financial emergency, such as an imminent foreclosure sale.
- Re-disclosure Requirement: If the final Annual Percentage Rate (APR) at loan consummation varies more than 0.125% (or 1/8 of one percent) from the initial APR on the early disclosures of a regular transaction, the lender must provide the borrower with a corrected disclosure at least three business days before the loan is consummated. For purposes of this waiting period, a “business day” is defined as all calendar days except Sundays and federal legal holidays as specified.
- Three-Day Waiting Period: For corrected disclosures, a lender cannot consummate a loan until three business days after the borrower receives the disclosure in person. If the corrected disclosure is mailed, the borrower is deemed to have received it three days after it is placed in the mail. A borrower may waive this waiting period in writing in case of a bona fide personal financial emergency, such as an imminent foreclosure sale.
The new MDIA rules and regulations are set forth at 74 Federal Register 23,289 (May 19, 2009)
(to be codified at 12 CFR 226).
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The new GFE is going to be a problem for a while. So much on there does not end up on the final HUD. Communication will be the key.
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