Revised Closing Disclosures
Regulation Z, section 1026.19(f)(1) requires lenders to provide closing disclosures prior to consummation of a mortgage loan. However, what happens when a mistake is made or a something occurs after providing the closing disclosures and they are inaccurate. Credit unions should review section 1026.19(f)(2), which lays out the procedures for correcting inaccurate closing disclosures. Section 1026.19(f)(2)(i) and (ii) provide instructions for pre-consummation changes to the closing disclosures and section 1026.19(f)(2)(iii) and (iv) provide instructions for post-consummation changes to the closing disclosures.
If you’ve provided closing disclosures, discovered an inaccuracy, and haven’t closed yet, you’re in luck. Section 1026.19(f)(2)(i) requires/permits creditors to provide corrected closing disclosures if the originals become inaccurate before consummation. Except as provided under section 1026.19(f)(2)(ii), the corrected disclosures can be provided at any time up to and at consummation. In other words, corrected disclosures provided pursuant to section 1026.19(f)(2)(i) require no new waiting period.
However, there are some instances where a new waiting period is required. Section 1026.19(f)(2)(ii) requires a new waiting period under the following three circumstances:
1. The annual percentage rate disclosed becomes inaccurate;
2. The loan product is changed such that the information disclosed under section 1026.38(a)(5)(iii) is inaccurate;
a. Section 1026.38(a)(5)(iii) requires the disclosure of the information required to be disclosed under section 1026.37(a)(10); and
3. A prepayment penalty is added that was not previously disclosed.
If any of the above occur, then section 1026.19(f)(2)(ii) requires that the consumer receive the corrected closing disclosures no later than three days before consummation. Yes, this means you may have to delay closing. Here is an example from the commentary:
“Assume consummation is scheduled for Thursday, June 11 and the disclosure for a regular mortgage transaction received by the consumer on Monday, June 8 under § 1026.19(f)(1)(i) discloses an annual percentage rate of 7.00 percent:
…B. On Thursday, June 11, the annual percentage rate will be 7.15 percent and corrected disclosures were not received by the consumer on or before Monday, June 8 because the annual percentage rate is inaccurate pursuant to § 1026.22. The creditor is required to delay consummation and provide corrected disclosures, including any other changed terms, so that the consumer receives them at least three business days before consummation under § 1026.19(f)(2)(ii).” (Emphasis added).
If consummation has already occurred, a lender’s options are more limited. For events that occur after consummation that make the closing disclosures inaccurate, section 1026.19(f)(2)(iii) requires a creditor to deliver corrected closing disclosures if:
1. An event occurs within 30 days after consummation;
2. The event causes the closing disclosures to become inaccurate; and
3. The inaccuracy results in a change in the amount paid by the consumer.
If the above conditions are met, the lender must deliver corrected closing disclosures no later than 30 days after obtaining information that established that the event occurred.
Here is an example from the commentary:
“Assume consummation occurs on a Monday and the security instrument is recorded on Tuesday, the day after consummation. If the creditor learns on Tuesday that the fee charged by the recorder's office differs from that previously disclosed pursuant to § 1026.19(f)(1)(i), and the changed fee results in a change in the amount actually paid by the consumer, the creditor complies with § 1026.19(f)(1)(i) and (f)(2)(iii) by revising the disclosures accordingly and delivering or placing them in the mail no later than 30 days after Tuesday.”
For non-numerical clerical errors discovered after consummation, section 1026.19(f)(2)(iv) permits a creditor to fix the error if the creditor provides corrected disclosures no later than 60 days after consummation. The commentary provides the following example:
“An error is considered clerical if it does not affect a numerical disclosure and does not affect requirements imposed by § 1026.19(e) or (f). For example, if the disclosure identifies the incorrect settlement service provider as the recipient of a payment, then § 1026.19(f)(2)(iv) requires the creditor to deliver or place in the mail corrected disclosures reflecting the corrected non-numeric disclosure no later than 60 days after consummation. However, if, for example, the disclosure lists the wrong property address, which affects the delivery requirement imposed by § 1026.19(e) or (f), the error would not be considered clerical.”
What happens when a borrower pays more than was disclosed in the loan estimate? Under section 1026.19(f)(2)(v), a creditor can fix the error by refunding the consumer the excess and providing corrected closing disclosures no later than 60 days after consummation.
What Happens if your Situation is not Discussed?
If you’ve read through this blog and section 1026.19(f)(2) and your situation doesn’t fit, its unfortunately likely to be an incurable violation. Depending on the error, this could be a large or small issue. If credit unions are interested in correcting the error, section 1640 of the Truth in Lending Act is instructive. Section 1640 states:
“(b) Correction of errors
A creditor or assignee has no liability under this section or section 1607 of this title or section 1611 of this title for any failure to comply with any requirement imposed under this part or part E of this subchapter, if within sixty days after discovering an error, whether pursuant to a final written examination report or notice issued under section 1607(e)(1) of this title or through the creditor's or assignee's own procedures, and prior to the institution of an action under this section or the receipt of written notice of the error from the obligor, the creditor or assignee notifies the person concerned of the error and makes whatever adjustments in the appropriate account are necessary to assure that the person will not be required to pay an amount in excess of the charge actually disclosed, or the dollar equivalent of the annual percentage rate actually disclosed, whichever is lower.” (emphasis added).
While the above provides a pathway to fixing an inaccurate closing disclosure, credit unions may still benefit from speaking to counsel if they are worried about potential liability.
About the Author
Keith Schostag joined NAFCU as regulatory compliance counsel in February 2021. In this role, Keith assists credit unions with a variety of compliance issues.