What is an application? Does anyone really care?

by. Henry Meier

The answer to the first question is that our good friends at the CFPB have provided us with a definition of application for purposes of sending out mortgage disclosures that takes effect next August.  The answer to the second question is if your credit union offers mortgages, then you should.

First, some background.  Who could forget last December when the CFPB unleashed a host of Dodd-Frank mandated regulations reshaping the regulatory framework for mortgages.  I know you all now know what a QM mortgage is, but you’re not quite done yet.  The CFPB also released regulations that integrated mortgage disclosures mandated by both the Truth in Lending Act and RESPA.  Starting next August, the GFE and early TIL will be replaced with a single document titled the Loan Estimate.  If you were like me, you looked at the 900 pages of this proposal, noted that the effective date wasn’t until August of 2015 and put it at the bottom of your to-do list.  Now, it is time to get focused.  There a lots of operational decisions that need to be made beyond simply calling up your vendor and finding out if it will be ready to send out the new disclosures.

One of the most basic and important changes made by the CFPB has to do with the definition of application.  Under existing law, lenders have to give a borrower a good faith estimate of the mortgage costs within three business days of receiving a mortgage application.  Under existing regulations, an application is received when a lender has the borrower’s name, monthly income, social security number, the property address, an estimate of the value of the property, the requested mortgage loan and — here’s the key part — “any other information deemed necessary by the loan originator.”  The catch-all provision is crucial since it gives lenders the ability to provide general loan estimates without being bound by a GFE.

Flash forward to August of next year and that catch-all provision will no longer be included in the definition of application.  Instead, any time a credit union receives the other six pieces of information, the application has been received and the GFE clock starts ticking.  Now, many lenders use more than these six pieces of information in making lending determinations.  So what are they going to do?

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