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Reg
Z Amended to Accommodate MDIA
The Federal
Reserve Board (FRB) has issued a final rule and staff commentary
to Regulation Z (Truth in Lending) to accommodate the changes
required when Congress
amended the Mortgage
Disclosure Improvement Act of 2008 (MDIA). MDIA is designed to
protect customers from practices of predatory lenders and imposes
timing requirements and waiting periods before loans may be closed.
Consumers will receive cost disclosures earlier in the mortgage
process.
In many respects, this rule is substantially
similar to the final rule issued by the FRB in July 2008; however,
it also broadens and adds to those requirements. The changes give
lenders only three months to get ready. Specifically, the changes
apply to applications received on or after July 30, 2009.
MDIA expands the coverage to include all closed-end consumer
mortgages. As readers are no doubt aware, only purchase-money loans
were included previously. This change includes loans secured by a
dwelling other than the consumer’s principle dwelling, including
second homes and vacation homes. Most investment property will be
eliminated from the requirements by the business purposes.
Highlights
of Changes
Good
Faith Estimates (GFEs) (early disclosures) of the costs of mortgage
loans covered by the Real
Estate Settlement Procedures Act (RESPA) must be provided within
three
business days after receiving a consumer’s application.
The definition of business day used here is
“when the creditor’s offices are open to the public for carrying
on substantially all of its business functions.” The rule advises
that consumer may be presumed to have received the early disclosures
three days after they are mailed
Prior
to the consumer’s receipt of the early disclosures, no fees may be collected
from the consumer, except for a fee for a credit bureau report.
Since this process should already be in place due to the fact that
it has been a requirement for the more narrowly defined scope of
loans, institutions only need to expand the number or types of loans
included in the process.
Second,
the consumer must have the GFE at least seven days before consummation. If
the early disclosures remain correct, the seven days can be counted
from the date the consumer is presumed or known to have received the
early disclosures. Note that the rule provides an additional
definition for business day. For purposes
of the consummation part of the rule, the definition is “all
calendar days except Sundays and the Federal legal holidays as
specified in 5 USC 6103(a).” Those holidays include January 1,
July 4, November 11, and December 25.
If
the annual percentage rate (APR) disclosed on the early disclosures
becomes inaccurate beyond a specified tolerance, the creditor shall
provide corrected disclosures with all changed terms. The consumer
must receive the corrected disclosures no
later than three business days before consummation. The same
presumption of the time of receipt applies if the corrected
disclosures are mailed.
Lenders
are required to provide the following notice with the early
disclosures and the disclosures provided before consummation:
“You are not required to complete this agreement merely because you
have received these disclosures or signed a loan application.”
This
disclosure must be grouped together with the early disclosures and
the disclosures required before consummation.
As
is currently the case, consumers may modify or waive the three- or
seven-day waiting periods if he/she determines the extension of
credit is needed to meet a bona fide personal financial emergency.
The consumer must provide a written statement that describes the
emergency, specifically modifies or waives the waiting period, and
bears the signature of all the consumers who are primarily liable on
the legal obligation.
Printed forms for this purpose are prohibited.
Final
Rule
The
final rule can be viewed at http://edocket.access.gpo.gov/2009/pdf/E9-11567.pdf.
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