The recent changes in regulatory compliance relative to the Real Estate Settlement Procedures Act (“RESPA”) have caused a significant level of concern and anxiety amongst bankers.
“Banks are unsure of the language of the regulation regarding the disclosure required if an APR increases by more than 1/8, or if it changes by more than 1/8. Is the tolerance different for ARMs? It has become apparent that in some situations, lenders consider overstating the initial APR to avoid having to wait the additional three days at closing. Although we have seen this in practice, this could be considered a risky venture if regulators catch on and decide that the bank is ‘gaming’ the system. At this point, prudent time management of pipeline flow is the most risk free approach to ensure loans are closed in a timely manner, despite the new re-disclosure issues.”
The Definition of Complete Application
“The question has been raised on what constitutes a complete application for disclosure purposes? Lenders who accept electronic applications have been struggling with this concept. There are many theories out there, unfortunately expounded upon by regulatory agencies which have their own internal definitions that often differ. Our approach has been to be very conservative, recommending that banks issue the 3-day disclosures when receiving a signed application from the borrowers, despite the fact that all necessary information may not be included. A bank’s “ability to make a credit decision” may be inferred, in some instances, to be clearly defined if a credit report, or requisite financial information, does not conform to the bank’s lending standards (even If “all “ information is not present, such as an appraisal).”
The Timing of Disclosures
“There is a minimum of seven days required from application until closing. In the instance of a loan that requires rescission, then the minimum is increased to 10 days. While we have found that some are not fond of this stipulation, it remains a requirement. There is no conceivable way at this point to shorten the new timeframe.”
Rate locks potentially delaying a closing
“Lenders are advising that rates should be locked at least 10 days prior to closing in order to avoid any potential delays due to re-disclosure requirements. This appears to be the most practical way of handling this provision. Rate locks traditionally take place closer to the closing date, as some borrowers liked to play ‘fast and loose’ with the rate. In some instances, the rate would be locked in as late as the day before closing. Obviously, if practices of this nature were to continue under these guidelines, then it would be akin to an Einsteinian loop – you lock the rate, re-disclose, lock the rate again, etc. The 10-day provision is a very sensible solution.”
What is and is not a finance charge?
“There is a lack of uniform understanding among lenders on what constitutes a ‘finance charge’. Are seller paid items exempt as finance charges? If so, under specific circumstances? This again is a subject of much contention. As a firm, we have used the ‘summary of finance charges’ in the Truth in Lending Comptrollers Handbook as a standard. While there are variances out there, this is the most conservative approach, and provides a firm footing to site for recommendations and/or criticisms.”
The waiving of seven day or three day waiting periods for a “bona fide” personal emergency
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