THE MORTGAGE DISCLOSURE IMPROVEMENT ACT OF 2008 by Grant Hamilton

The Mortgage Disclosure Improvement Act of 2008 (“MDIA”) required that the Federal Reserve Board issue implementing rules which changed certain aspects of the federal Truth in Lending Act (“TILA”) and Regulation Z (“Reg. Z”). The new rules are applicable to all residential mortgage loan applications taken on or after July 30, 2009 (the “effective date”). According to the new rules as published in Volume 74, No. 95 of the Federal Register (dated May 19, 2009), mortgage loan applications taken on or after the effective date impose certain restrictions regarding fees, are subject to waiting or delay periods for a certain amount of time after the estimated TILA disclosures are provided at application, and are also subject to waiting or delay periods after the corrected or “final” TILA disclosures are received by the consumer.

Though most residential mortgage lenders have already adopted the practice, under the MDIA, the early TILA disclosures must be provided on all loans subject to RESPA that are secured by the consumer’s principal dwelling. Additionally, creditors and any other person(s) may not impose a fee on the consumer in connection with a loan before the consumer receives the early TILA disclosures. Along standard “mailbox rule” lines, consumers are deemed to receive the early TILA disclosures three business days after they are mailed. However, the commentary to the MDIA provides that fees may be imposed any time after the consumer actually receives the disclosures. As an exception to the rule above, under the MDIA, a reasonable, bona fide fee may be collected for the cost of a credit bureau report before the consumer receives the early TILA disclosures.

Under the old rules, if the annual percentage rate in the early disclosures becomes inaccurate, corrected disclosures could be provided at consummation or settlement; however, under the new rules of the MDIA, the creditor must furnish the corrected disclosures to the consumer no later than three business days before the date of consummation. This is, perhaps, the most problematic aspect of the MDIA, in that certain quality control steps will need to be taken internally by mortgage lenders to evidence compliance with this rule.

The new rules of the MDIA provide that both the early estimated TILA disclosures and the corrected, final TILA disclosures must include the following notification: “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.” This disclosure may be included in the notices required by Reg. Z Section 226.19(a)(1) and 226.19(a)(2).

Just like the existing rules governing the waiving of rescission under Regulation Z, the waiting periods under MDIA may be waived if there is a bona fide personal financial emergency affecting the consumer. This may be done by the consumer if the consumer provides a signed and dated written statement that describes the emergency and modifies or waives the waiting period. It must be signed by all consumers who are liable on the obligation and preprinted forms may not be used.

As is typical, individual investors may have specific rules regarding a showing of compliance with the new rules created under the MDIA. All lenders are encouraged to consult their individual investors prior to closing any loan where the application was taken on or after the effective date of the MDIA.

We hope you have found this information to be helpful. If we can be of further assistance to you with regard to this issue or any other matter, please let us know.

The information in this article is not intended as legal advice but is instead intended to provide a general understanding of the law. Readers with legal problems, including those whose issues are addressed here, should consult an attorney of their choosing for advice on their particular circumstances. Grant Hamilton is an attorney with Levin & Atwood, L.L.P. He has a general practice focusing on commercial litigation and residential real estate document preparation. Grant can be reached via phone at 281-579-6044 or by email ghamilton@levinandatwood.com