Consumer Compliance Outlook: Third Quarter 2009

Mortgage Disclosure Improvement Act of 2008 — Amendments to Regulation Z

The Second Quarter issue of Consumer Compliance Outlook promoted a "Call the Fed" audio conference on Consumer Compliance Hot Topics hosted by the Federal Reserve Bank of San Francisco. We have received a significant number of follow-up questions, the majority of which were about the Mortgage Disclosure Improvement Act (MDIA) rules. As a result, we have developed an MDIA summary followed by a series of questions and answers. In particular, we hope to provide additional clarification to questions that generated the most significant discussion on the call.



The MDIA became effective on July 30, 2009. On May 19, 2009, the Federal Reserve Board published final amendments to Regulation Z to implement the MDIA. The MDIA and the amendments apply to any closed-end consumer mortgage transaction subject to the Real Estate Settlement Procedures Act (RESPA) that is secured by a consumer's dwelling. That includes home refinance and home equity loans but does not include loans that are not "consumer credit," which is not subject to disclosure under Regulation Z. Existing guidance in comment 3(a)-2 of the Official Staff Commentary (OSC) for Regulation Z provides factors for determining whether an extension of credit is primarily for business or commercial purposes (rather than consumer credit).

Business Day Definitions

Timing Rules


  1. Section 226.19(a)(4) requires the following statement be included on the early disclosure: "You are not required to complete this agreement merely because you have received these disclosures or completed a loan application." Where should the statement be included on the disclosures?

    Under §226.19(a)(4), this statement must be grouped together with the disclosures required by §226.18, but it need not be grouped together with the disclosures that are required to be "more conspicuous." If the §226.18 disclosures are grouped together and bordered by a box, the notice must appear in the box. However, comment 17(a)(1)-2 of the OSC clarifies that those disclosures may be grouped together and segregated from other information in other ways, such as by bold dividing lines, a different color background, or a different type style.

    If a creditor must make corrected disclosures, the creditor may provide either all the disclosures required by §226.18 (as applicable) or only the terms that vary from those previously disclosed, as provided in comment 19(a)(2)(ii)-2 of the OSC. Whichever disclosures the creditor chooses to make, the statement required by §226.19(a)(4) must be provided and must be grouped together with those disclosures. Again, those disclosures may, but need not, be segregated by being enclosed in a box, but they must be segregated by some means.

  2. What constitutes a "bona fide personal financial emergency"?

    Under the MDIA, a consumer may modify or waive the seven-day or three-day waiting period before consummation if the consumer has a bona fide personal financial emergency that necessitates consummating the credit transaction before the end of the waiting period. Whether these conditions are met is determined by the facts surrounding individual situations. However, the consumer must receive accurate TILA disclosures at or before the time the consumer modifies or waives the waiting period.

    To modify or waive a waiting period, the consumer must give the creditor a dated written statement that describes the emergency, specifically modifies or waives the waiting period, and bears the signature of all the consumers who are primarily liable on the legal obligation. Creditors may not use pre-printed forms for this purpose.

    The imminent sale of the consumer's home at foreclosure, where the foreclosure sale will take place unless loan proceeds are made available to the consumer during the waiting period, is one example of a bona fide personal financial emergency. See comment 19(a)(3)-1 of the OSC. However, there may be additional situations that constitute bona fide personal financial emergencies. Institutions should make the decision as to whether a bona fide personal financial emergency exists on a case-by-case basis.

  3. When sending corrected disclosures by e-mail or courier, can we presume receipt on the third business day without documenting actual delivery?

    Yes, just as with standard mail, the creditor may presume that the consumer receives the corrected disclosures three business days after they are deposited with a courier or sent by e-mail.

  4. If we have evidence of actual receipt (by e-mail, courier, or other method), can we start the three-business-day waiting period sooner?

    Yes. If a creditor delivers disclosures via one of these, or other, methods, the creditor may rely on evidence of actual receipt to determine when the three-business-day waiting period begins.

    Because the Board did not specify standards for acceptable evidence, it is up to the institution to document receipt.

  5. Does the E-Sign Act apply when delivering the early and corrected TILA disclosures electronically?


  6. Are corrected disclosures required when the APR is overstated on the early disclosures? What if this overstatement is the result of fees being waived at or near consummation?

    The rule specifies that if the APR is inaccurate as determined under §226.22(a), a corrected disclosure is required and the three-business-day waiting period prior to consummation would apply. Sections 226.22(a)(2) and (a)(3) state that APRs are considered accurate if they are not more than one-eighth (for regular transactions) or one-quarter (for irregular transactions) of 1 percent, respectively, above or below the actual APR, as determined in accordance with §226.22(a)(1). Thus, some overstated APRs may require corrected disclosures just as understated APRs do.

    However, paragraphs (a)(4) and (a)(5) contain additional tolerances for APR accuracy on mortgage loans. Specifically, for a mortgage loan, the disclosed APR is considered accurate under §226.22(a)(4) if the rate is overstated but results from the disclosed finance charge which is also overstated. Further, under §226.22(a)(5), a disclosed APR that is closer to the actual APR than the APR that would be considered accurate under §226.22(a)(4) is also considered accurate. Creditors should closely examine these two paragraphs when determining whether an APR that is overstated is inaccurate and thus requires corrected disclosures and a three-business-day waiting period.

    Note that §226.17(f) may also require a corrected disclosure (but no three-business-day waiting period) before consummation. This requirement is triggered if any aspect of the earlier disclosure, as opposed to only the APR, has become inaccurate.

  7. If there are multiple borrowers entitled to disclosures living at the same address, do we need to mail separate disclosures to each of them? Do these disclosures need to be in separate envelopes, or can they be included in the same envelope?

    Yes, multiple borrowers entitled to disclosures must each receive their own copy of the disclosure. Regulation Z does not specify how many envelopes must be used.

  8. When is an application considered to be received by the creditor?

    Section 226.19(a)(1)(i) states that a creditor shall deliver or place in the mail good-faith estimates of the disclosures required by §226.18 not later than three business days after the creditor receives the consumer's written application. This timing requirement runs from the time the creditor receives the application. If the application comes to the creditor from an "intermediary agent or broker," the timing runs from when the creditor received the application, not when the agent or broker received it from the consumer (see comment 19(b)-3 for guidance in determining whether the transaction involves "an intermediary agent or broker"). Comment 19(a)(1)(i)-3 of the OSC states that creditors may rely on RESPA and Regulation X (including any interpretations issued by the Department of Housing and Urban Development) in deciding whether a written application has been received. Regulation X defines "application" in §3500.2(b).


The provisions implementing the MDIA discussed in this article are in §226.19 of Regulation Z. The Federal Register notice is available at External Site. Implementing these new rules has proven a significant undertaking for many institutions, with many more changes to mortgage lending rules becoming effective in the next few months. Lenders should continue to monitor and update their systems and other control processes to ensure compliance with these rules. Specific questions should be raised with the consumer compliance contact at your Reserve Bank or with your primary regulator.