Compliance Update

Written By: Bonnie Wilt-Hild, Op-Ed Writer

As of July 30, 2009 there will be several new changes regarding early disclosure law, closing restrictions as well as changes to Regulation Z and RESPA so I thought now might be a good time to bring some of this stuff to everyone’s attention so that when underwriting the compliance piece of the mortgage application we get it right. The changes fall under The Mortgage Disclosure Improvement Act (MDIA) and will affect all mortgage applications for any consumer purpose mortgage transaction subject to the Real Estate Settlement Procedures Act (RESPA).

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The MDIA will broaden the category of application which requires early disclosure of mortgage applications which will result in the securitization of a consumers dwelling including second and vacation homes and applies to purchase transactions, refinances and assumptions. The new rule will not apply to HELOC application. Under the new rule, estimated disclosures must be given no later than three business days after receipt of application for any consumer purpose mortgage and should include a Good Faith Estimate of Settlement Charges (which need not contain an itemization of the amount financed), Truth in Lending disclosure as well as a Servicing Transfer Disclosure.

It should also be noted that “Business day” will now be defined as a day the creditor’s office is open and is conducting normal business. Additionally if the application reaches the creditor through an intermediary agent or broker, the application is considered received when it reaches the creditor rather than when it reaches the intermediary agent or broker. If the application is denied or withdrawn within three business days of receipt than early disclosure is not required.

Currently HUD’s Regulation X defines “application” as the submission of a borrower’s financial information in anticipation of a credit decision whether written or computer generated. If the submission indicates no particular property than the application should be considered a pre-approval and not an application for RESPA covered mortgage loans. Under the new MDIA requirements the early disclosures must contain the following statements: “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.” This statement must be grouped together with the required early disclosures.

The new MDIA requirements will also allow a restriction on fees charged by the lender. Neither a creditor nor any other person may impose a fee on a consumer before the consumer has received the early disclosures other than a reasonable fee for obtaining a credit report so collection of appraisal fees upfront is prohibited except under the circumstance of a face to face application where the borrower was directly provided the early disclosures.

There will also now be a waiting period prior to consummation of the mortgage application if revised disclosures must be provided to the borrower due changes in the terms and conditions of the mortgage application which result in an increased APR of more than 1/8th of percentage point in a regular transaction or more than 1/4th of one percentage point in an irregular transaction from the time that the early disclosures were provided to the final loan terms. Under the new rules the new the corrected early disclosures must be received by the consumer not later than three business days before consummation of the mortgage.

What this means for everyone is that if you are required to provide the borrower revised disclosures because the terms of the conditions of the transactions are changing to such a point that the APR will increase by the aforementioned ratio’s, than you must wait at least 3 business days from the receive of the corrected disclosures to close the mortgage. The consumer can execute a waiver of the three day period under certain circumstances such as financial emergencies however the waiver must be received in writing.

These are the larger points where the new guidelines are concerned however there additional changes including changes to section 32 regulation as well rescission rules. Further guidance can be obtained on HUD’s website or other government regulatory agencies such OTS and FDIC.

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About The Author

Bonnie Wilt-Hild - As an op-ed writer, Bonnie has held many mortgage underwriting positions, including Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans".


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