Mortgage Concepts: Timelines for lender RESPA disclosures

Mortgage Concepts is a recurring video series covering best practices and compliance education for California mortgage loan originators. This video covers delivery of the Loan Estimate and Closing Disclosure forms.

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Disclosing costs

Mortgage lender disclosures of costs incurred by a borrower are of two types; one at the beginning of the mortgage application process called a Loan Estimate, and the other before funding the mortgage origination called a Closing Disclosure. Each form serves a separate and different purpose for advising the borrower of transaction costs.

The mortgage lender on each consumer mortgage transaction uses a Loan Estimate form to disclose:

the date the estimate is mailed or delivered to the borrower; [12 CFR §1026.37(a)(4)]
the email address and telephone number of the loan officer; [12 CFR §1026.37(k)(3)]
whether on the borrower’s resale of the property a future buyer is permitted to assume the mortgage without modification, called an assumption; [12 CFR §1026.37(m)(2)] and
whether the mortgage lender intends to service the mortgage or transfer servicing to another servicer. [12 CFR §1026.37(m)(6)]

Delivery of the Loan Estimate

The Loan Estimate form is delivered or mailed to the borrower by the mortgage lender within three business days after the borrower submits a loan application. When the prepared 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, the mortgage may not close until seven business days have passed after delivering or mailing the Loan Estimate (or revised Loan Estimate). [12 CFR §1029.19(e)(1)(iii)(B)]

Delivery of a Closing Disclosure form

Mortgage payment and contact information are disclosed by the mortgage lender in the Closing Disclosure form. [12 CFR §1026.38(c)(1)] [12 CFR §1026.38(r)]

Further, all costs associated with the origination of the mortgage are included in the Closing Disclosure under the heading Closing Cost Details, with columns stating whether the charge is:

borrower-paid at or prior to closing;
seller-paid at or prior to closing; or
paid by others. [12 CFR §1026.38(f)]

Also included are itemized charges prepaid by the borrower in advance of the first scheduled mortgage payment, and the name of the persons receiving the payments or government agency collecting property taxes which the mortgage lender enters under the subhead Prepaids in the Closing Disclosure form. [12 CFR §1026.38(g)(2); 12 CFR §1026.37(g)(2)]

Each charge the borrower is to deposit on closing in an impound account, called an escrow account, is itemized in the Closing Disclosure by the mortgage lender under the subhead Initial Escrow Payment at Closing. These escrowed funds are reserves of the borrower’s money the lender holds and disburses to pay property taxes, insurance premiums and other periodic property-related expenses other than the monthly mortgage payment. [12 CFR §1026.37(g)(3)]

The name of the borrower’s real estate broker and the seller’s real estate broker, and their addresses are entered in the Closing Disclosure by the mortgage lender under the subheading Contact Information. [12 CFR §1026.38(r)(2)]

The amount of Total Closing Costs the borrower pays before closing is entered on the Closing Disclosure by the mortgage lender under the subhead Final. When the amounts entered as Total Closing Costs differ from amounts entered under the subhead “Loan Estimate,” a statement noting the difference and that the difference resulted from amounts paid prior to closing is included at Total Closing Costs subhead. [12 CFR §1026.38(i)(2)(ii)(A)]

Each charge connected to the transaction, other than disclosed as mortgage lender services, which will be borrower-paid at or before closing whether incurred by the borrower, the seller, or other party on close of the real estate transaction (together with the name of the person ultimately receiving the payment and the total of all of the Borrower-paid items), are entered by the mortgage lender in the applicable column under the subheading Other in the Closing Disclosure. [12 CFR §1026.38(g)(4)]

Related video:

Mortgage Concepts: Lender ECOA disclosures of action taken, Part 1

Delivery of the Closing Disclosure to the borrower by the lender is to occur no later than three business days before closing the mortgage transaction. [12 CFR §1026.19(f)(1)(ii)]

When the transaction is rescindable, the Closing Disclosure is delivered to each borrower who has a right to rescind the mortgage origination.

For mortgage transactions that are not rescindable, the Closing Disclosure is delivered to the borrower with primary liability on the mortgage (e.g., other than a guarantor or surety). When more than one borrower is involved, the Closing Disclosure need only be delivered to one borrower. [12 CFR §1026.17(d)]

When the Closing Disclosure is not delivered in person, it is 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 is to contain a brief statement entered under the subhead Liability after Foreclosure about whether and on what conditions the borrower remains liable under State law for any deficiency after foreclosure. [12 CFR §1026.38(p)(3)]

Further, the Closing Disclosure is to contain a brief statement regarding other borrower liability, noting:

State law protections may be lost when the borrower refinances or further encumbers the property with debt; and
the borrower advised to consult competent counsel for additional information.

Definition of business day

Note: the definitions for a business day differ, producing differing durations of time to pass after delivery of the Loan Estimate and delivery of the Closing Disclosure forms.

For delivery of the Loan Estimate, a business day is considered any day the lender’s offices are open to the public to carry out substantially all of its business functions. [Official Interpretation of 12 CFR §1026.19(e)(1)(iii)-1; 12 CFR §1026.2(a)(6)]

On the other hand, for delivery of the Closing Disclosure, a business day includes all days except Sundays and legal public holidays. [12 CFR §1026.2(a)(6)]; 12 CFR §1026.19(f)(1)(ii)(A)-(iii)]

Corrected Closing Disclosure

When terms or costs change after delivery of the initial Closing Disclosure, the mortgage lenders is to provide the borrower a corrected Closing Disclosure for:

changes requiring a new three-business-day waiting period before closing [12 CFR §1026.19(f)(2)(ii)];
changes not requiring a new three-business-day waiting period before closing [12 CFR §1026.19(f)(2)(i)]; and
changes occurring after closing. [12 CFR §1026.19(f)(2)(iii)]

Changes before closing which trigger a new three-business-day waiting period are:

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

As a critical distinction, all other changes before closing do also trigger delivery of a new Closing Disclosure but do not also trigger the three-business-day period before closing. [12 CFR §1026.19(f)(2)(i); Official Interpretation of 12 CFR §1026.19(f)(2)(i)-1-2]

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