Have you ever wondered if there’s a way to waive the three day closing disclosure rule? In this post, we’ll review the three day closing disclosure rule (and the deadline differences between those sent by mail and those that are hand-delivered), along with what requirements there are to waive the three day waiting period, and how the pandemic has affected the three day disclosure rule.
Quick Review of the Three Day Closing Disclosure Rule
The federal law that regulates the mortgage process (known as the TRID) requires that lenders provide borrowers with a closing disclosure at least three business days before the close of the mortgage. The closing disclosure will contain all the details of the final terms of the mortgage, including interest rate, APR, closing costs, monthly payments and loan features. The three day period is measured by days, not hours. This means that the disclosures must be delivered three days before closing, not 72 hours before. If a federal holiday falls in the three-day period, add a day for disclosure delivery. A business day includes every day of the week, excluding Sundays and federal holidays.
The purpose of the three-day rule is to help consumers identify and avoid a bait and switch. Consumers are encouraged to identify any significant changes to the agreed-upon terms (such as an increase in mortgage rate or closing costs). If there are discrepancies found, they should ask their lender to address and correct the issue. If the lender can’t explain or resolve the issue, consumers may cancel (rescind) their mortgage any time before signing the final loan documents. Doing so may cost them time (and sometimes money) but is far better than getting a mortgage that will cost significantly more in the long run.
Closing Disclosures Sent by Mail
As for closing disclosures sent by mail, the mailbox rule presumes that a borrower receives the disclosures three business days after they’re sent. Receipt of documents can occur earlier by having the borrower acknowledge early receipt in writing. For a regular week (without federal holidays), this means that disclosures for a loan that closes on Monday should be sent the prior week (on Monday), and must be received by the previous Thursday. If the closing date is a Wednesday, the disclosures should be sent the Wednesday before and should arrive to the borrower by Saturday of the same week. This requires a good amount of planning on behalf of realtors to ensure that borrowers get the documents when they need them. Realtors seeking extra peace of mind may choose to send the documents certified or require a signature upon receipt if they’d like, but it’s not required by the rule.
Other Delivery Methods for Closing Disclosures
There are several other delivery methods, all of which only require three business days rather than the multiple business days that are required for closing disclosures sent by mail. One is to have a courier deliver the documents and require the borrower to sign for them. Alternatively, you could hand-deliver the documents or electronically deliver them on the due date in compliance with E-Sign requirements.
Requirements to Waive the 3-Day Waiting Period
Waiving the three-day waiting period is an option for clients, but in order to do so there must be good reason. The parameters to work within here are very finite, and although the pandemic has changed things a bit (we’ll go into that later), it hasn’t changed much. The requirements are left intentionally narrow to prevent clients from waiving the three-day waiting period for reasons of inconvenience.
The Consumer Financial Protection Bureau’s TRID rule states that the Consumer Financial Protection Bureau “recognizes that the limited guidance on what constitutes a bona fide personal financial emergency may limit the use of a waiver, but… the waiver should be reserved for limited use: when a consumer faces a true financial emergency, as distinct from an inconvenience.”
If the consumer is going through a bona fide personal financial emergency, they can ask for the 3-day waiting period to be waived. The example given in the original TRID rule states that, if a client is going to lose the home if the mortgage doesn’t close within three days, that client can waive the 3-day waiting period (provided that they meet the other requirements).
Receipt of Closing Disclosure
The closing disclosure must be received in order for the mortgage to be closed.
Signed, Written LetterThe lender must be provided a signed and written letter. This letter should explain what the personal financial emergency is and state that they are waiving all or part of the three-day waiting period. The lender is not permitted to provide a waiver form for the client to fill out and sign, so this letter must be formulated by the client.
A Lender’s Perspective
If all of the above requirements are met, it’s likely that the lender will grant a waiver. According to Harry Jensen, a mortgage expert with over 45 years of experience, it may still take some convincing, because waiving the waiting period “may expose the lender to legal risk if something goes wrong with (the) mortgage.” Since the CFPB states that “the existence of the consumer’s waiver will not, of itself, automatically insulate the creditor from liability,” most lenders are hesitant to honor these waivers. Due to this fact (and in light of the financial consequences the pandemic has had on many consumers), the CFPB has clarified some things for lenders and consumers.
Updates to 3-Day Waiting Period Rules Due to Pandemic
In April of 2020, the CFPB issued an interpretative rule meant to “make it easier for consumers with urgent financial needs to obtain access to mortgage credit more quickly” in light of the pandemic. Note: although the interpretive rule provides clarity, it does not relax the rules for obtaining waivers.
The interpretative rule requires that:
- Consumers determine that they need an extension of credit in order to meet a bona fide personal emergency
- Consumers write a brief statement describing the emergency as a personal financial need that is due to the COVID-19 pandemic
- This emergency necessitates that the transaction is consummated before the end of the waiting period, and that the consumer has a bona fide personal financial emergency that will permit the consumer to waive the waiting period and utilize the modification for COVID-19.
The CFPB reiterated that creditors are not permitted to use printed forms for consumers to agree to such modifications and waivers, and that the prohibition applies to electronic disclosures as well. On May 4, 2020, they provided an example: “The creditor cannot include a pre-populated waiver form within a batch of electronic disclosures provided to the consumer under the TRID Rule, Regulation Z, and other Regulations.” The pandemic has been determined by the CFPB as a “changed circumstance” beyond the control of any interested party, and has thus allowed creditors to provide revised estimates of settlement charges to consumers (in the case that COVID-19 causes a change in previously disclosed charges). The most recent TRID rules can be found here.
Simplify the Closing Process
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