A proposed federal law would require mortgage lenders to provide loan documents at least four days before a loan closing while not requiring settlement agents to provide their costs to lenders — even if the information would be needed to complete the required documents.
Legislation introduced in the U.S. House of Representatives in December 2009, H.R. 4229, would amend the Real Estate Settlement Procedures Act to impose deadlines on mortgage lenders and settlement agents. The bill apparently is now the focus of mortgage industry trade groups, and is viewed by some as favoring settlement agents over lenders.
The legislation would require that a mortgage lender provide the settlement agent with the following documents at least four business days before the scheduled date of settlement: the completed promissory note, deed of trust or other mortgage instrument, all items that are needed to complete the HUD-1 Settlement Statement, the final Truth in Lending Act disclosure and the final closing instructions.
Subject to the lender’s delivery of the loan documents as provided for in the bill, and subject to exceptions, the bill would require the settlement agent to deliver to the borrower at least three business days before the scheduled date of settlement all of the loan documents provided by the lender (except for the closing instructions) and the completed HUD-1. The borrower could elect to have the documents furnished by electronic mail (subject to the Electronic Signatures in Global National Commerce Act), facsimile, or personal inspection at the office of the settlement agent, with a copy that the borrower could retain.
The requirement to provide the documents three business days before closing would not apply if the settlement agent needed to make corrections to the HUD-1 and any related documents if (1) an update of the title search and examination of the prospective mortgaged property reveals any defects, liens, encumbrances, or other matters not discovered in previous searches, (2) subject to the lender’s approval, the borrower’s inspection of the prospective mortgaged property requires financial adjustments, (3) the borrower and lender agree to make material changes to the loan transaction or (4) any other permissible corrections, as identified by the Department of Housing and Urban Development (HUD) in regulations, are made. The three business day delivery requirement also would not apply if HUD created exemptions for settlements in which compliance with the requirement would be impractical, or for settlements in localities where the final HUD-1 is not customarily provided at or before the date of settlement.
While lenders would be required to provide the final loan documents and information necessary to complete the HUD-1 to the settlement agent at least four business days before closing, the bill imposes no obligation on the settlement agent to provide closing cost information to the lender at any time, even if the information would be needed to complete the required documents. The bill also does not provide for any exceptions to the delivery requirement that would be imposed on lenders, nor does it specify the methods by which the lender could comply with the delivery requirement.
The bill does not appear be coordinated with the Mortgage Disclosure Improvement Act that became effective last summer and requires that revised TILA disclosures for mortgage loans be received by borrowers at least three business days before closing in certain cases. Additionally, the Federal Reserve Board (Board) has proposed to (1) expand the annual percentage rate to include most mortgage loan charges, (2) revise the TILA disclosure form for mortgage loans to include HUD-1 information and (3) to require that the final disclosures be received by borrowers in all cases at least three business days before closing. A lender could not satisfy the requirements under the Board’s proposal unless it received the final HUD-1 information from the settlement agent early enough in advance of settlement to permit the lender to prepare the final TILA disclosure and provide for the disclosure to be received by the borrower at least three business days before settlement.
