Mortgage Disclosure Improvement Act (MDIA) creates additional delays

On July 30, 2008 Congress enacted the Housing and Economic Recovery Act of 2008, which included amendments to TILA, known as the Mortgage Disclosure Improvement Act (MDIA). MDIA took effect on July 30, 2009, approximately two months earlier than the originally planned. Significant changes include,
  • Initial Fees – Lenders may only collect a fee for the reasonable cost of a credit report prior to the issuance of the initial disclosures. Disclosures must be given before the consumer pays any fee, other than a bona fide and reasonable fee for obtaining the consumer’s credit history.
  • Initial Disclosure Statement – Lenders must continue to issue disclosures 3 business days from application, however, the issuance of the initial TIL Statement now extends to “any extension of credit secured by the dwelling of a consumer” which includes refinance transactions and home equity loans.
  • Notice of  “No Requirements to Complete” – The MDIA requires that the early disclosures contain a clear and conspicuous notice containing the following statement: “You are  not required to complete this agreement merely because you have received these disclosures or signed a loan application.”
  • Revised APR  Three Business Day Notice – If the APR is out of tolerance, lenders must re-disclosure three business days prior to consummation. 
  • Seven Business Days Prior to Consummation – Lenders must allow applicants to have a 7 business day waiting period after mailing or delivering the TIL prior to closing of the loan.  This timing is not based on receipt date (or assumed receipt date) by the consumer- the timing begins with the mailing or delivery by the lender.
  • Waivers – Borrowers may waive both the seven-day and three-day waiting period to meet a bona fide personal financial emergency.   However, if the TIL Statement is out of tolerance, the waiver is no longer effective.  After re-disclosure, borrowers must submit a signed statement describing the emergency. 
  • Denied or withdrawn applications – Lenders may determine within the three-business-day period that the application will not or cannot be approved on the terms requested.  If the consumer withdraws the application within the three-business-day period, the creditor need not make the disclosures under this ruling.
  • Written application – RESPA defines a written application as the submission of a borrower’s financial information in anticipation of a credit decision relating to a Federally related mortgage loan.  An application is considered received when it reaches the creditor by mail, hand delivery, or through an intermediary agent or broker.
  • Timeshare Transactions – Lenders must comply with the initial disclosure requirements; however, both the 3- and 7-day waiting periods do not apply.

Further complicating the mortgage process, Fannie Mae announcement 9-19 tightens the credit report expiration dates…

The maximum age of credit documents is reduced from 120 days to 90 days for existing construction and from 180 days to 120 days for new construction. Credit documents include credit reports and employment, income, and asset documentation. The age of the documents is measured from the date of the document to the date the note is signed.”

These new requirements will likely lengthen average app-to-close times resulting in more credit reports expiring.  This will require new credit reports be obtained at additional cost to the borrower(s) and risk changes occurring in the report that may result in lower FICO scores – thereby endangering the deal or at very least causing yet additional delays and potentially lock expirations.

Thomas Conwell

President and founder, Credit Technologies, Inc. Past President/Director National Consumer Reporting Association (NCRA.)