Complying with the new Truth-in-Lending Laws (MDIA)
As of August 1st, all mortgage lenders must be fully compliant with the Mortgage Disclosure Improvement Act (MDIA). Summarized below are the frequently asked questions regarding MDIA.
Mortgage Disclosure Improvement Act
Your Questions Answered
1 – When is the application considered received? MDIA allows lenders to rely on RESPA and Regulation X in deciding whether a written application has been received. Regulation X defines application to mean “the submission of a borrower’s financial information in anticipation of a credit decision relating to a Federally related mortgage loan.” The rule states that an application is received when it reaches the creditor in any of the ways applications are normally transmitted- by mail, hand delivery, or through an intermediary agent or broker.
2 – What is considered a business day? The Truth-in-Lending Act contains two definitions of a business day. One is the general definition and the other is known as the specific definition . The general definition is “a business day is a day on which the creditor’s offices are open to the public for carrying on substantially all of its business functions.” The specific definition is “a business day is all calendar days except Sundays and Federal holidays. Under MDIA, the definition of business day for both the 3 and 7-day waiting periods is: all calendar days except Sundays and holidays, which is specific definition. The general definition applies to the timing of the initial TIL disclosures. The specific rule applies when to Right of Rescission and loans subject to the Home Ownership and Equity Protection Act.
3 – Can we accept a post-dated check for the appraisal? Not advised. Asking for a post-dated check or advance credit card authorization conveys to the consumer that “they are accepting the transaction prior to reviewing the disclosures.” Disclosures must be given before the consumer pays any fee, other than a bona fide and reasonable fee for obtaining the consumer’s credit history.
4 – Are E-mailed disclosed considered received? If disclosures are delivered electronically consistent with the E- Sign Act or by overnight courier, the creditor may rely on evidence of actual delivery to confirm receipt, otherwise the lender must assume the disclosures were received in three business days.
5 – How do we know when the APR is out of tolerance? Re-disclosure is required when the when the APR varies by more than one-eighth of one percent (.125) in a regular transaction (fixed-rate) or more than one quarter of one percent (.25) in an irregular transaction (adjustable rate). The comparison is based on the estimated APR at consummation and the most recently disclosed TIL.
6 – What if the APR was over-stated, do we have to re-disclose? No. Re-disclosure is not required as long as the APR remains within tolerance. Overstated finance charges are not considered a violation.
7- When does the clock tick for the 3-day waiting period after re-disclosure? If the APR is out of tolerance, lenders must re-disclose three business days prior to consummation. If the corrected disclosures are mailed, the consumer is considered to receive the disclosures three business days after mailing — which is when the clock starts ticking. If disclosures are delivered electronically consistent with the E- Sign Act or by overnight courier, evidence of actual delivery determines when the three-business-day waiting period begins.
8 – When does the 7-day waiting period apply? Lenders must allow applicants to have a 7 business day waiting period after mailing or delivering the initial TIL prior to closing of the loan. Closing may not occur until the expiration of both the 7-day waiting period after initial disclosure and, if applicable, the 3-day waiting period after re-disclosure.
9 – Do waivers add risk to the lender? Yes, and waivers are not permitted by many investors. For a bona-fide personal emergency, lenders are advised to follow strict procedures for proper documentation and borrower signatures. For purchase transactions that contain language referring to a “time of the essence” closing date should be amended to accommodate the full waiver requirements.
10 – Are disclosures required for denied or withdrawn applications? Lenders may determine within the three-business-day period that the application cannot be approved on the terms requested. If the consumer withdraws the application within the 3-day time period, the lender is not required to issue disclosures.
Bankers Advisory Staff Attorney Hotline
Bankers Advisory provides a full range of mortgage compliance audit and consulting services. Kristin Seltman, Esq. kristin@bankersadvisory.com and other staff attorneys are available to answer your compliance questions by e-mail. Our response time is fast and we provide reference material, example forms and helpful guides. Many of our quality control clients have added our enhanced services package, which includes comprehensive state & federal audits in tandem with QC. We write the books and All Regs matrices — and pass this valuable research and expertise onto our clients.
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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