VIDEO: Redisclosing the Closing Disclosure
In this Compliance Clip (video), Adam answers the question on whether or not you are required to provide the consumer with a corrected Closing Disclosure within three business days if there is a change to the initial Closing Disclosure. The answer to this question comes from Regulation Z.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about redisclosing the Closing Disclosure. Specifically, we can take a look at this question. It says, “If there is a change to the disclosed terms after the creditor provides the initial Closing Disclosure, is the creditor required to ensure the consumer receives a corrected Closing Disclosure at least three business days before consummation?” We understand that the Closing Disclosure has to be provided three business days before closing, but if we have something that changes, do we have to give a new Closing Disclosure three business days before we can close, pushing back our closing date?
The answer of course to this is going to come from Regulation Z 1026.19. Also, we can take a look at the frequently asked questions under the Truth in Lending RESPA, FAQ number one, under the section of Corrected Closing Disclosures and the three business day waiting period before consummation. So let's take a look at this Frequently Asked Question number one ‘cause it explains it quite well, then we'll dive a bit into the regulation itself to give you a citation on where this rule is coming from.
Frequently Asked Question number one says this, it depends on the type of change. So we're asking, do we need to have a new three-day waiting period? Well, the answer is, it depends on the type of change. As discussed below, so that's in the frequently asked question, it says there are three types of changes that require a creditor to ensure that the consumer receives a corrected Closing Disclosure at least three business days before consummation. For other types of changes, a creditor is not required to ensure that the consumer receives a corrected Closing Disclosure at least three business days before consummation, but is required to ensure that the consumer receives a corrected Closing Disclosure at or before consummation.
The question is, do we have to wait three business days? How do we correct a Closing Disclosure when something has changed after we issued it? Well, there's two answers to that. It's either we just provide a corrected one at closing, or potentially, if we have one of three things that's referenced here, we may have to wait an additional three days before we can close. That's essentially our answer.
Now, let's take a look at the regulation and see where all of this lies in the regulation in Regulation Z. We look at 1026.19(f)(1)(ii)(A). This is the general requirement that says a creditor must ensure that a consumer receives an initial Closing Disclosure no later than three business days before consummation. So this is the initial Closing Disclosure. Now, if something changes, we can take a look at two other parts to Regulation Z. The first part is 1026.19(f)(2)(i), and what this says is if the disclosed terms changed after the creditor has provided the initial Closing Disclosure to the consumer, the creditor must assure that the consumer receives a corrected Closing Disclosure at or before consummation. So for most changes, you can just provide an updated Closing Disclosure at the time of closing. That's what this is saying.
However, as our Frequently Asked Question number one said, there are three things that do trigger a new three day waiting period. This is actually found in 1026.19(f)(2)(ii). There are three types of changes that do require a creditor to provide a corrected Closing Disclosure at least three business days before consummation or before closing the loan. These three things include number one, a change results in the APR becoming inaccurate. So the APR is inaccurate when it moves more than 0.125 or 0.25, depending on the type of transaction it is. So if the APR becomes inaccurate, you would have to provide a new Closing Disclosure and wait three business days before consummation. The second thing that would require a new Closing Disclosure in a three-day waiting period is if the loan product information required to be disclosed under the TRID rule has become inaccurate. So if you change the loan product, you have to provide a new Closing Disclosure and wait a new three-day waiting period. Then finally, if you add a prepayment penalty, that is also gonna trigger a new three-day waiting period after you provide an updated and corrected Closing Disclosure. Other than these three things, you don't have to wait three days, you can just provide updated Closing Disclosure at the time of closing assuming you provided an initial Closing Disclosure three days before the initial closing.
That's all I have for you for this Compliance Clip.