The MDIA By Richard Andreano, Jr.

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Background  In July 2008 the FRB adopts significant revisions to Regulation Z regarding mortgage loans (the “July Rule”).  Among other changes, the FRB:  Expands the initial TIL disclosure requirement for purchase money loans on primary dwellings to all primary dwellingsecured loans.  Adds a limitation on up front fees.  The July Rule appears in the July 30, 2008 Federal Register, with an effective date for most changes of October 1, 2009. 2

Background  Also on July 30, 2008, Congress adopts the Mortgage Disclosure Improvement Act (MDIA) to amend the Truth in Lending Act.  The MDIA is Division B, Title V of the Housing & Economic Recovery Act, Public Law No. 110-289.  With regard to timeshare plans, the MDIA is amended by Division A, Sec. 130 of the Emergency Economic Stabilization Act, Public Law No. 110-343.

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Background  The MDIA:  Expands the initial TIL disclosure requirement even more than expanded by the July Rule.  Includes the fee restriction of the July Rule.  Imposes waiting periods and other requirements that are not part of the July Rule.  Except for certain variable rate disclosure requirements and changes to statutory damages, the MDIA applies to applications taken on or after July 30, 2009.  The FRB proposes an MDIA rule in December 2008 and adopts a final MDIA rule in May 2009. 4

Initial TIL Disclosure  Under the MDIA, the initial TIL disclosure requirement is expanded to all dwelling-secured loans that are subject to RESPA, except HELOCs.  A creditor must deliver or mail an initial TIL disclosure within 3 business days of application and at least 7 business days before consummation.  Note: The rules on labeling initial disclosures as estimates, as applicable, are not changed.  The general “business day” definition applies to the 3 business day delivery requirement.

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Initial TIL Disclosure  The general “business day” definition is any day on which the creditor’s offices are open to conduct substantially all of its business functions.  What does this mean for the timeframe to deliver or mail the initial TIL disclosure?  The timeframe to deliver or mail the initial TIL disclosure is not changed.  The change is that an initial disclosure now must be provided for all dwelling-secured transactions (except HELOCs), and not just purchase money loans on primary dwellings.

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Initial TIL Disclosure  The specific “business day” definition applies to the 7 business day waiting period from the time you deliver or mail the initial TIL disclosure and consummation.  The specific “business day” definition is all calendar days except Sundays and legal public holidays identified in 5 USC 6103(a):  New Years Day 1/1, Martin Luther King, Jr.’s Birthday, Washington’s Birthday, Memorial Day, Independence Day 7/4, Labor Day, Columbus Day, Veterans Day 11/11, Thanksgiving Day and Christmas Day 12/25.

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Initial TIL Disclosure  Example of the 7 business day waiting period:  If the initial TIL disclosure is delivered or mailed on Tuesday September 8, consummation may occur on or after Wednesday September 16.  This is subject to the 3 business day waiting period for a corrected TIL disclosure if the APR is out of tolerance. Sunday

Monday

Tuesday 1

CON = Consummation 6 7 Labor Day

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14

8 Initial TIL delivered or mailed 15

Thursday

Friday

September 2009 Saturday 5

Wednesday 2

3

4

9

10

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16 CON may occur on or after this date

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Initial TIL Disclosure  If the initial TIL disclosure is delivered or mailed on Tuesday September 1, consummation may occur on or after Thursday September 10.  September 7 is not a business day.  Again, this is subject to the 3 business day waiting period for a corrected TIL disclosure if the APR is out of tolerance. Sunday

Monday

Tuesday

6

7 Labor Day

1 Initial TIL delivered or mailed 8

13

14

15

CON = Consummation

Wednesday 2

9

16

Thursday

Friday

September 2009 Saturday 5

3

4

10 CON may occur on or after this date 17

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12

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Corrected TIL Disclosure  If the APR in the most recent TIL disclosure (initial or an updated disclosure) is out of tolerance, the consumer must receive a final corrected disclosure at least 3 business days before consummation.  To determine receipt of the corrected TIL disclosure, a creditor may rely on either actual receipt or the mailing rule.  If actual receipt is used, consummation can occur 3 business days after actual receipt.  If you rely on the mailing rule, the consumer is deemed to receive the corrected disclosure 3 business days after mailing, and consummation can occur 3 business days after the deemed receipt.  So if you rely on the mailing rule, remember 3 plus 3. 10

Corrected TIL Disclosure  The specific “business day” definition applies to the 3 business day waiting period and the mailing rule.  If the corrected disclosure is sent by email or a courier other than the postal service, the creditor also can rely on either actual receipt or the mailing rule.  Both the 3 business day waiting period and the 7 business day waiting period must expire before consummation may occur.

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Corrected TIL Disclosure  Basically with a corrected disclosure the FRB has established a two-method approach:  You can send the disclosure by mail, another courier service or email and rely on the mailing rule; or  You can deliver the disclosure in person or send it by mail or other courier service, email or another method, and rely on actual receipt.  The MDIA rule does not address what constitutes actual receipt.  Other laws and methods accepted in the industry to show actual receipt will apply.  Now, let’s look at how the 3 business day waiting period and mailing rule work with a few examples. 12

Corrected TIL Disclosure  If on Monday September 14 a creditor delivered a corrected disclosure directly to the consumer, consummation could occur on or after Thursday September 17.  Note, this assumes that the 7 business day waiting period also ended on or before Thursday September 17.  In this example, the initial disclosure would need to have been delivered or mailed on or before Wednesday September 9. Sunday

Monday

Tuesday 1

CON = Consummation 6 7 Labor Day

8

13

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14 Corrected TIL delivered in person

Wednesday 2 9 Initial TIL delivered or mailed 16

Thursday

Friday

September 2009 Saturday 5

3

4

10

11

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17 CON may occur on or after this date

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Corrected TIL Disclosure  If on Monday September 14 a creditor mailed a corrected disclosure, the consumer would be deemed to receive the disclosure on Thursday September 17, and consummation could occur on or after Monday September 21, if the 7 business day waiting period also ended on or before that date.  Note, this assumes that the creditor relies on the mailing rule. Sunday

Monday

Tuesday 1

Wednesday 2

CON = Consummation 6 7 Labor Day

8

13

14 Corrected TIL mailed

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9 Initial TIL delivered or mailed 16

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21 CON may occur on or after this date

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Thursday

Friday

September 2009 Saturday 5

3

4

10

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17 Deemed receipt of Corrected TIL 24

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Corrected TIL Disclosure  If the creditor mailed the corrected disclosure on Monday September 14 and there is actual receipt on Tuesday September 15, consummation could occur on or after Friday September 18, if the 7 business day waiting period also ended on or before that date.

Sunday

Monday

Tuesday 1

CON = Consummation 6 7 Labor Day

13

14 Corrected TIL mailed

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15 Actual receipt on this date

Wednesday 2 9 Initial TIL delivered or mailed 16

Thursday

Friday

September 2009 Saturday 5

3

4

10

11

12

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18 CON may occur on or after this date

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Corrected TIL Disclosure  The need to provide a corrected disclosure is triggered by the APR being out of tolerance.  The MDIA rule refers to the APR becoming inaccurate as defined in Regulation Z Section 226.22. That Section includes:  The statutory 1/8% and 1/4% APR tolerances for regular and irregular transactions.  The APR overstatement tolerance based on an overstated finance charge.  The APR tolerances for the rescission right based on the finance charge.

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Corrected TIL Disclosure  For purposes of the MDIA, the applicable APR tolerances are:  The statutory 1/8% and 1/4% APR tolerances for regular and irregular transactions.  The APR overstatement tolerance based on an overstated finance charge (there is no general APR overstatement tolerance).  If a corrected disclosure is received by the borrower 3 business days before consummation, do you still need to provide a final TIL disclosure at consummation?  May need to provide under Regulation Z Section 226.17(f).  Other considerations.

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Waiver of Waiting Periods  If there is a bona fide personal emergency, a consumer may modify or waive either or both of the 7 business day waiting period applicable to the initial disclosure and the 3 business day waiting period applicable to a corrected disclosure.  A consumer must receive the applicable disclosure before modifying or waiving the related waiting period.  The bona fide personal emergency must require that consummation occur before the end of the waiting period.

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Waiver of Waiting Periods  To waive or modify a waiting period, a consumer must provide the creditor with a dated written statement that describes the emergency and specifically waives or modifies the waiting period.  The statement must be signed by all of the consumers who are primarily liable on the legal obligation.  Printed forms are not permitted.

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Waiver of Waiting Periods  What is a bona fide personal emergency?  The Commentary provides one example: The imminent sale of the consumer’s home at foreclosure, where the foreclosure sale will proceed unless loan proceeds are made available to the consumer during the waiting period.  You should view waivers of the waiting periods in the same manner as waivers of the rescission right.

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Fee Limitation  No fee may be imposed on a consumer before the consumer receives the initial TIL disclosure, except a fee for a credit report that is bona fide and reasonable in amount.  The restriction applies to the creditor and any other person.  A creditor may rely on actual receipt or the mailing rule to determine when the consumer receives the initial TIL disclosure.

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Fee Limitation  If the initial TIL disclosure is mailed, the consumer is deemed to receive the disclosure 3 business days after mailing.  Note, the Commentary for the corrected TIL disclosure provides that if the corrected disclosure is sent by email or a courier other than the postal service, the creditor can rely on the mailing rule (or actual receipt).  The Commentary for the fee restriction does not include the same concept.

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Fee Limitation

 When relying on the mailing rule, the creditor may not impose a fee (beyond a credit report fee) until after midnight on the third business day after receipt.  The specific “business day” definition applies to the mailing rule.  This follows the rescission rule concept of having to wait 3 full business days before disbursement may occur.

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Fee Limitation 

For example, when relying on the mailing rule, if the initial TIL disclosure is mailed on Wednesday September 9, a fee (beyond a credit report fee) may be imposed after midnight on Saturday September 12 (i.e., on or after Sunday September 13).

Sunday

Monday

Tuesday 1

CON = Consummation 6 7 Labor Day

8

13

15

14

Wednesday 2

Thursday

Friday

3

4

9 Initial TIL delivered or mailed

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16

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September 2009 Saturday 5 12 Fee may be imposed after this date 19

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Notice Requirement  Both the initial and corrected TIL disclosures must include the following notice: “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.”  This notice must be grouped together with the disclosures required by Regulation Z Section 226.18— i.e., it must be in the federal box.  The notice can be included in TIL disclosures for closed-end transactions not subject to the initial disclosure requirement.

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Variable Rate Disclosure Requirements  The MDIA includes the following new variable rate disclosure requirements:  The payment schedule must be labeled as follows: “Payment Schedule: Payments Will Vary Based on Interest Rate Changes.”  The TIL disclosure must include, in conspicuous type size and format, examples of adjustments to the regular payment on the loan based on changes in the interest rate.  The examples must include a maximum payment example based on the maximum rate.

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Variable Rate Disclosure Requirements

 The new variable rate disclosure requirements are effective the earlier of January 30, 2011 or the date established by FRB in implementing regulations.  The FRB has not proposed rules yet, and plans to address the new requirements in its comprehensive review of the mortgage disclosure requirements.  A violation of new variable rate disclosure requirements will be included in the violations that subject a creditor to statutory damages.

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Statutory Damages

 Speaking of statutory damages, the MDIA increased the statutory damages from a minimum of $200 and a maximum of $2,000 to a minimum of $400 and a maximum of $4,000.

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Thank you. Richard Andreano, Jr. Weiner Brodsky Sidman Kider PC Washington, DC [email protected]

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