Mortgage Disclosure Improvement Act is a newer law that was created in part due to the mortgage crisis that occurred in 2008. This law was passed by the Federal Reserve Board inJuly 2008 and became effective in July 2009. Its main purpose is to make certain early disclosure requirements mandatory on non-purchase transactions that were previously only required on purchase transactions. It also requires waiting periods between the time when disclosures are given and closing of the mortgage transaction.
MDIA now applies to:
- Any extension of credit secured by the dwelling of a consumer.
- Refinance loan transactions and home equity loans. It does not apply to Home Equity Lines of Credit.
- Non Owner Occupied, aka investment properties.
Disclosures are now required to be given to consumers explaining that they are not obligated to complete the transaction simply because disclosures were provided or because they applied for a loan.
The MDIA is the law that created what we now know as the 3/7/3 rule. The rule requires creditors to make reasonable estimates of the required mortgage disclosures, and deliver or place them in the mail, no later than three (3) business days after receiving a consumer’s application for a residential mortgage loan. The loan closing may occur on or after the seventh (7) business day after the delivery or mailing of these disclosures. If the APR provided in the estimate changes beyond a .125 on a fixed rate or .25 on anything other than a fixed rate loan, a creditor must provide corrected disclosures. The corrected disclosures borrower must be received on or before the third (3) business day before closing of the transaction in order to be in compliance. In case you are not aware, a business day is considered all days except Sunday or Federal Holidays.
Prior to 2008 a mortgage company or loan officer could collect the credit report fee, the appraisal fee, application fee and any other “junk” fees upfront at the time of the loan application. However, today MDIA says that no fee other than the credit report fee can be collected prior to the borrower receiving the early disclosures. Also, only the bona fide fee for the credit report can be charged to the borrower, no profit can be made on this third party fee.
As you can see, the Mortgage Disclosure Improvement Act is all about making information clear and available to the consumer. Historically that was not always the case. In today’s environment, many feel that the mortgage industry is over-regulated and over protective of the consumer. However, much of the mortgage meltdown was due to lack of disclosure by creditors and poor knowledge or understanding by the consumer. This law benefits both the creditor and the consumer. If the lender does their job properly and provides disclosures as required they can’t be accused of not giving the borrower the details of their loan. If the consumer is given the disclosures they can’t play the ”I didn’t know” card. Therefore, it can be viewed that this law holds the lender accountable and the borrower responsible and that is the best of both worlds.
If you would like to learn more about the Mortgage Disclosure Improvement Act you can review the Federal Reserve Board’s newsletter called the Federal Register at http://www.federalreserve.gov/reportforms/formsreview/RegZ_20090519_ffr.pdf
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