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MLO Mentor is an ongoing series covering compliance best practices for mortgage loan originators (MLOs). This article details disclosure timelines for the Loan Estimate and Closing Disclosures.

No one likes surprises, least of all homebuyers in the middle of closing a transaction. But when they do occur, consumers need ample time to react. This is why MLOs need to keep in mind federally mandated timelines for important disclosures.

Timeliness of disclosures

For the Loan Estimate, a business day is any day on which the lender’s offices are open to the public, and carrying out substantially all of its business functions.

Note that this is a different definition than the definition of business day for the Closing Disclosure form. For the Closing Disclosure, a business day is any calendar day except Sunday and legal public holidays. [12 CFR §1026.2(a)(6)]; 12 CFR §1026.19(f)(1)(ii)(A)-(iii)]

For each mortgage transaction subject to Real Estate Settlement Procedures Act (RESPA), the creditor shall disclose, through the Loan Estimate:

  • the date the disclosures are mailed or delivered to the consumer; [12 CFR §1026.37(a)(4)]
  • the email address and telephone number of the loan officer; [12 CFR § 1026.37(k)(3)]
  • a statement of whether a subsequent purchaser of the property may be permitted to assume the remaining loan obligation on its original terms, labeled “Assumption”; [12 CFR § 1026.37(m)(2)] and
  • a statement of whether the creditor intends to service the loan or transfer the loan to another servicer, labeled “Servicing.” [12 CFR § 1026.37(m)(6)]

Related Article:

Mortgage Concepts: is my loan subject to RESPA?

Delivery of the Loan Estimate 

The integrated Loan Estimate form must be delivered or mailed to the consumer within three business days after the consumer submits a loan application. If the Loan Estimate is not delivered in person, it’s considered received by the borrower three business days after it’s placed in the mail. [12 CFR §1026.19(e)(1)(iii),12 CFR §1026.19(e)(1)(iv)]

Additionally, seven business days must pass between delivering or mailing the Loan Estimate (or revised Loan Estimate) before the loan may close. [12 CFR §1029.19(e)(1)(iii)(B)]

Delivery of the Closing Disclosure

The Closing Disclosure is required to be used by the creditor to disclose payment and contact information. [12 CFR § 1026.38(c)(1)] [12 CFR § 1026.38(r)]

Under the subheading “Contact Information,” the creditor is required to disclose the consumer’s real estate broker (under subheading “Real Estate Broker (B)” and the seller’s real estate broker (under the subheading “Real Estate Broker (S)”, the address. [12 CFR § 1026.38(r)(2)]

The creditor is also required to disclose on the Closing Disclosure, under the subheading “Final,” the amount of “Total Closing Costs” designated as borrower-paid before closing. If the amounts disclosed under this section are different from those disclosed under the subheading “Loan Estimate,” a statement of the fact along with a statement that the amounts were paid prior to settlement is to be included. [12 CFR §1026.38(i)(2)(ii)(A)]

Additionally, the creditor shall disclose, under the subheading “Other” and in the applicable column, an itemization of each amount for charges in connection with the transaction that are in addition to the charges disclosed for services that are required or obtained in the real estate closing by the consumer, the seller, or other party, the name of the person ultimately receiving the payment, and the total of all such itemized amounts that are designated borrower-paid at or before closing. [12 CFR § 1026.38(g)(4)]

The Closing Disclosure is to be provided to the consumer no later than three business days before loan consummation. [12 CFR §1026.19(f)(1)(ii)]

If the transaction is rescindable, the Closing Disclosure must be provided to each consumer who has a right to rescind the loan.

For transactions that are not rescindable, the Closing Disclosure needs to be provided to the consumer with primary liability on the loan (e.g., other than a guarantor or surety). If there is more than one consumer on the loan, the Closing Disclosure need only be provided to one borrower to fulfill this requirement. [12 CFR §1026.17(d)]

If the Closing Disclosure is not delivered in person, it’s considered received by the borrower three business days after it’s placed in the mail or emailed. [12 CFR §1026.19(f)(1)(iii); Official Interpretation of 12 CFR §1026.19(f)(1)(ii)-2)]

The Closing Disclosure to contain a brief statement of whether, and the conditions under which:

  • the consumer may remain responsible for any deficiency after foreclosure under applicable State law;
  • a brief statement that certain protections may be lost if the consumer refinances or incurs additional debt on the property; and
  • a statement that the consumer should consult an attorney for additional information, under the subheading “Liability after Foreclosure.”

If the applicable State law affords any type of protection, other than a statute of limitations that only limits the timeframe in which a creditor may seek redress, a statement that State law may protect the consumer from liability for the unpaid balance is also required. [12 CFR §1026.38(p)(3)]

Corrected Closing Disclosure

Creditors are required to provide a corrected Closing Disclosure if terms or costs change after the initial Closing Disclosure was provided. There are three types of changes which require a corrected Closing Disclosure:

  • changes that occur before consummation that require a new three-business-day waiting period [12 CFR §1026.19(f)(2)(ii)];
  • changes that occur before consummation and do not require a new three-business-day waiting period [12 CFR § 1026.19(f)(2)(i)]; and
  • changes that occur after consummation. [12 CFR §1026.19(f)(2)(iii)]

Changes before consummation requiring a new three-business-day waiting period are:

  • changes to the annual percentage rate (APR);
  • changes to the loan product; or
  • the addition of a prepayment penalty. [12 CFR §1026.19(f)(2)(ii)]

All other changes before consummation require a new Closing Disclosure, but do not retrigger the three-business-day period before consummation. [12 CFR §1026.19(f)(2)(i); Official Interpretation of 12 CFR §1026.19(f)(2)(i)-1-2]

No waiting time on Closing Disclosure changes

Since a Loan Estimate is used to ensure the estimated costs were made in good faith when compared with the final costs in the Closing Disclosure, the revised Loan Estimate may not be delivered on the same day as, or after the Closing Disclosure. [12 CFR §1026.19(e)(4)(ii)]

Thus, once the Closing Disclosure has been issued, the Loan Estimate may no longer be revised to reflect the changes. Instead, any significant changes that occur require a revised Closing Disclosure.

Before June 1, 2018, lenders that issue a revised Closing Disclosure needed to provide it to the homebuyer at least four days prior to closing, and within three days of the lender becoming aware of the changed circumstance. [12 CFR §1026.19(3)(4)]

This created what is known as the TILA-RESPA black hole. Changes triggering a revision to the Closing Disclosure that occurred in the last four days of closing left a gap which caused some lenders to forego charging homebuyers higher market rates, simply to avoid additional delays in closing.

The CFPB’s ruling says this has been damaging to lenders. It claims lenders, rather than move closings, may have passed on the unclaimed higher costs they were unable to charge in these special circumstances to the next homebuyers.

Therefore, the Closing Disclosure now needs to show revised costs, without a restriction on when it is provided in relation to closing.

For example, consider a homebuyer taking out a mortgage and preparing to close on a home. Their lender provides the required Closing Disclosure three days before closing is scheduled.

After the homebuyer receives the Closing Disclosure and before they close, they request closing be pushed back more than seven days. They also request a change which results in a higher APR, increasing closing costs by more than 10%. A change of this magnitude would normally require a revised Loan Estimate be issued, but the lender is prohibited from providing a revised Loan Estimate at the same time or after the Closing Disclosure has been issued. [§1026.19(e)(4)(ii)]

In this case, the lender’s correct option is to issue a revised Closing Disclosure. [12 CFR §1026.19(e)(4)(i)]

Since the homebuyer requested closing be pushed back more than seven days, under the old system, the lender is unable to comply with the law and provide the homebuyer with a revised Closing Disclosure within four days of closing and within three days of the requested change.

Before June 1, 2018 the “black hole” issue forced lenders to either:

  • refuse to push back closing so the homebuyer can receive the revised Closing Disclosure within the appropriate timeframe; or
  • absorb the additional costs beyond the 10% increase over the original Closing Disclosure caused by the higher APR.

The current rule removes the lender’s calculus, and simply says that when a valid reason causes the Closing Disclosure to change, they may provide the revised Closing Disclosure regardless of the timing, and regardless of when the homebuyer receives the revision in relation to closing. [Official Interpretation of 12 CFR §1026.19(e)(4)(ii)-1]

Changes after consummation

For changes that occur after consummation, the Closing Disclosure is to be provided to the consumer no later than 30 calendar days after receiving notification of the change. An example of such a change would be if the consumer paid more for recording fee than was disclosed in the Closing Disclosure. [12 CFR §1026.19(f)(2)(iii); Official Interpretation of 12 CFR §1026.19(f)(2)(iii)-1]

If during the 30-day period following consummation, an event in connection with the settlement of the transaction occurs that causes the disclosure to become inaccurate, and such inaccuracy results in a change to an amount actually paid by the consumer from that amount disclosed, the creditor shall deliver or place in the mail a corrected disclosure no later than 30 days after receiving information sufficient to establish that such event has occurred. [12 CFR § 1026.19(f)(2)(iii)]

For changes due to non-numerical clerical errors, or to document the correction of an overage charged above the allowable tolerances, the corrected Closing Disclosure is to be provided within 60 calendar days of loan consummation. [12 CFR §1026.19(f)(2)(iv)-(v)]

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