February 2005 | DocMagic

CA Supreme Court Strikes Down Municipal Predatory Lending Ordinance

On January 31, 2005, the California Supreme Court delivered its much-anticipated decision in American Financial Services Association (AFSA) v. City of Oakland. The Court held that the Oakland ordinance regulating predatory lending practices within the city of Oakland (the "Ordinance") was preempted by the California predatory lending law (CA Financial Code Sections 4970-4979.8) ("Division 1.6"). The favorable outcome of this case for the mortgage lending industry was far from a forgone conclusion, as evidenced by the divided Court's 4-3 majority decision opinion and thoughtful dissent.

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HMDA 2004 Reporting Requirements

Effective January 1, 2004, a number of changes have been made to the Home Mortgage Disclosure Act (HMDA) reporting requirements. Some of the changes include the following: (1) lenders subject to HMDA reporting requirements are required to report the "rate spread" for each loan they originate and applications that do not result in an origination (the rate spread is defined as the difference between the APR on a loan and the rate on Treasury securities with comparable maturity periods for loan originations in which the APR exceeds the applicable rate by a percentage specified by the Federal Reserve Board); and (2) lenders must report whether a particular loan is subject to the Home Ownership and Equity Protection Act of 1994 (HOEPA). The rate spread and HOEPA status information have been incorporated into DocMagic's HMDA-LAR reporting capabilities.

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Early and Initial Disclosures for Home Equity Lines of Credit

The Truth in Lending Act, Subpart B, governs open-end credit lines secured by a borrower's dwelling. This article assumes that the lender or broker has compliant Early and Initial Disclosures in place and elaborates upon the sections and values that should be updated on a periodic basis.1 Lenders and brokers must periodically review and update these Disclosures for their home equity line of credit (HELOC) programs to ensure that accurate information is provided to the applicant or borrower at the required time. Failure to provide accurate disclosures pursuant to 15 U.S.C. §1637 may result in civil liability, including actual and statutory damages of $200 to $2,000 per individual case or $500,000 or 1% of the net worth of the creditor in a class action suit, attorneys' fees, and enhanced rescission rights.2 However, failure to provide the information as mandated in 15 U.S.C. §1637a, such as the historical example, will not trigger civil liability penalties for creditors.3

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Contracting and Disclosing Plainly in Mortgage Lending

Statutory plain-language is, essentially, a borrower-oriented language: Clear and conspicuous, reasonably understandable, and noticeable in relation to legislative findings and intent and the information required by law. Federal Regulation P, dealing with the Privacy of Consumer Financial Information, defines "clear and conspicuous" as a notice that is reasonably understandable and "designed to call attention to the nature and significance of the information in the notice" [12 C.F.R. 216.3(b)(1)] by using simple, short sentences and paragraphs, direct speech, active voice, everyday words with commonplace meanings, principles of readability, communications graphics, honest intent, and full and fair disclosure of all material terms and conditions. In the author's opinion, the public policy goals of plain language statutes as they apply to residential mortgage lending are: (1) to enforce honest market-place standards, (2) improve consumer understanding and access, (3) encourage participation, and (4) demystify lending.

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RESPA and TILA Disclosures

As a service to our customers, the Compliance Department has prepared the following tables that summarize a lender’s disclosure obligations under Regulation X of the Real Estate Settlement Procedures Act (“RESPA”) and Regulation Z of the Truth in Lending Act ("TILA"). The Compliance Department hopes that the tables will serve as handy reference tools for lenders and brokers in their day-to-day management of residential mortgage loans.

RESPA Disclosures
TILA - Home Equity Plans
TILA - Closed-End Loans

RESPA Disclosures

Type of Disclosure	# of Disclosures	Timing	Explanation
1. Special Information Booklet	At least one applicant (24 CFR 3500.6(a))	Within 3 days after receipt of application (24 CFR 3500.6(a)(1))	Not required for refinances, subordinate liens and reverse mortgage liens or if loan declined within 3 business days after receipt of application. (24 CFR 3500.6(a)(3))
2. When Your Home is On the Line: What You Should Know About Home Equity Lines of Credit	At least one applicant (24 CFR 3500.6(a))	Within 3 days after receipt of application (24 CFR 3500.6(a)(1))	Given in lieu of Special Information Booklet to applicants of home equity loans and other open-end credit plans; not required for refinances, subordinate liens and reverse mortgage liens. (24 CFR 3500.6(a)(2) and (3))
3. Controlled (or Affiliated) Business Arrangement Disclosure Statement (AfBA)	RESPA does not address. However, as GFE may be provided to one applicant, it would be reasonable to interpret RESPA as permitting AfBA to also be provided to one applicant.	Must be provided on a separate piece of paper no later than the time of each referral, or, if the lender requires use of a particular provider, the time of application, except where lender makes referral to borrower, lender may make disclosure at time GFE is provided. (24 CFR 3500.15(b)(1)(i))
4. Good Faith Estimate (GFE), with Required Provider Disclosures	At least one applicant. It is sufficient to provide to one of the applicants. (See preamble to the publication of the current Regulation X, 57 Federal Register 49,600, 49,605 (11/2/92))	Within 3 days after application is received or prepared (24 CFR 3500.7(a) and (b))	GFE must be delivered or mailed to the loan applicant. Not required for open-end lines of credit if TILA disclosures made or if loan declined within 3 business days after broker’s receipt of application; application that does not identify property does not trigger GFE requirement.
5. Uniform Settlement Statements (HUD-1 or HUD-1A)	A single HUD-1 may be distributed to multiple borrowers in a single transaction (Final rule issued by the Office of the Assistant Secretary for Housing-Federal Housing Commissioner, at 57 FR 49600 (at p. 13))	At or before closing, but must be available on borrower’s request at least one day before settlement. (24 CFR 3500.10(a) and (b))	Must be provided to borrower, seller (if applicable), lender (if not settlement agent), and their agents. If there is a borrower and seller, and HUD-1 or HUD-1A statements differ, both statements must be provided to lender.
6. Initial Escrow Account Statement	RESPA does not address. As this Statement may be incorporated into the HUD-1 or HUD-1A settlement statement, and only one settlement statement may be provided where multiple borrowers are involved, it would be reasonable to interpret RESPA as requiring Initial Escrow Statement to be provided to one borrower.	At closing or within 45 calendar days after closing (24 CFR 3500.17(g) and (h))	May be delivered by hand or by placing Statement in the U.S. mail, first-class postage prepaid, addressed to last known address of recipient. A servicer must provide initial escrow account statements substantially in the format prescribed in former Appendix G of Regulation X (see Appendix 2A).
7. Annual Escrow Statement – The servicer must also include previous year’s projection or initial escrow account statement. (24 CFR 3500.17(i))	RESPA does not address. Recommend providing at least one Statement to different addresses of borrower.	Not less than once each 12-month period and within 30 calendar days after the end of its escrow account computation year (which need not be a calendar year).	Regulation X authorizes the servicer to deliver the Annual Escrow Account statement to the borrower with other statements or materials, including the Substitute 1098 provided for federal income tax purposes.
8. Servicing Disclosure Statement and Applicant Acknowledgment (24 CFR 3500.21(b))	Face-To-Face Interview: One applicant may accept delivery on behalf of other applicants before settlement by signing required acknowledgment. No Face-To-Face Interview: Must be mailed, first-class postage prepaid. If co-applicants indicate the same address on their application, only one copy must be mailed to that address. If the application indicates different addresses for co-applicants, a copy must be mailed to each different address.	Face-To-Face Interview: At time of application (24 CFR 3500.21(c)(1)) No Face-To-Face Interview: Within 3 business days after receipt of application, unless application is declined during that period. (24 CFR 3500.21(c)(2))	Make sure to provide Statement before asking applicant(s) to sign lock-in agreement. (See Rochester Home Equity, Inc. v. Upton, 1 Misc.3d 412, 767 N.Y.S.2d 201, 2003 N.Y. Slip Op. 23842 N.Y.Sup, October 29, 2003, by the Supreme Court for Monroe County, New York)
9. Notice of Servicing Transfer (Goodbye Letter)	RESPA does not address. However, recommend follow delivery requirements for Servicing Disclosure Statement.	May be delivered at settlement or not less than 15 days before effective date of transfer (24 CFR 3500.21(d)(2)(i)(A)	Transferor and transferee servicers may combine their notices into one notice, which must be delivered not less than 15 days before effective date of transfer. (24 CFR 3500.21(d)(2)(i)(C))
10. Notice of Servicing Transfer (Hello Letter)	RESPA does not address. However, recommend follow delivery requirements for Servicing Disclosure Statement.	May be delivered at settlement or not more than 15 days after effective date of transfer (24 CFR 3500.21(d)(2)(i)(A)	Transferor and transferee servicers may combine their notices into one notice, which must be delivered not less than 15 days before effective date of transfer. (24 CFR 3500.21(d)(2)(i)(C))

TILA Disclosures - Home Equity Plans

Type of Disclosure

# of Disclosures

Timing

Explanation

General Disclosure Requirements (12 CFR 226.5)

Creditor must make disclosures clearly and conspicuously in writing, in a form that the consumer may keep, except:

1. Home equity disclosures required under Section 226.5b(d),

2. The alternative summary billing rights statement provided for in Section 226.9(a)(2), and

3. Disclosures made under Section 226.10(b) about payment requirements

need not be in a form that the consumer can keep.

Subject to certain exceptions, the disclosures required by Subpart B (Open-End Credit) may be made to any consumer who is primarily liable on the account. However, if right of rescission is applicable, the disclosures required by Sections 226.6 and 226.15(b) shall be made to each consumer having the right to rescind. (12 CFR 226.5(d))

The finance charge imposed at the time of the transaction under Section 226.9(d) need not be written.

The terms finance charge and annual percentage rate, when required to be disclosed with a corresponding amount or percentage rate, shall be more conspicuous than any other required disclosure.

Initial disclosures: A creditor must furnish the initial disclosure statement required by Section 226.6 before the first transaction is made under the plan.

If estimates are used, a disclosure must be based on the best information reasonably available and must clearly state that the disclosure is an estimate.

Home Equity Disclosures (“Early Disclosures”):

1. Retention of information

2. Conditions for disclosed terms

3. Security Interest and Risk to Home

4. Possible Actions by Creditor (this may be provided separately from other required disclosures)

5. Payment Terms

6. Annual Percentage Rate (APR)

7. Fees Imposed by Creditor

8. Fees Imposed by Third Parties to Open a Plan (this may be provided separately from other required disclosures)

9. Negative Amortization

10. Transaction Requirements

11. Tax Implications

12. Disclosures for Variable-Rate Plans (this may be provided separately from other required disclosures)

13. Home Equity Brochure published by Federal Reserve Board or a suitable substitute (12 CFR 226.5b)

The disclosures may be made to any consumer who is primarily liable on the account. (12 CFR 226.5(d))

The disclosures and brochure required by Section 226.5b(d) and (e) (see first column) shall be provided at the time an application is provided to the consumer, but may be delivered or mailed not later than 3 business days following receipt of a consumer’s application in the case of applications contained in magazines or other publications, or when application is received by telephone or through an intermediary agent or broker. (12 CFR 226.5b-(b))

If disclosures and brochure are mailed to the consumer, the consumer is considered to have received them three (3) business days after they are mailed.

All disclosures required under Section 226.5b(d) must be made clearly and conspicuously and must be grouped together and segregated from all unrelated information. They may be provided on the application form or on a separate form.

Persons other than the creditor who provide applications to consumers for home equity plans must provide the brochure required under Section 226.5b(e) at time application is provided. If such persons have disclosures required under Section 226.5b(d), they shall also provide these disclosures at such time. Electronic communication may be used per Section 226.36.

Disclosures made at time of application need not be in a form that the consumer can keep.

The disclosures numbered 1 through 4 must precede the other home equity disclosures. (12 CFR 226.5b(a)(2))

When APR must be disclosed with a number, APR must be more conspicuous than other required disclosures.

Material Disclosures: Initial Disclosure of finance charge, other charges, security interests, statement of billing rights, and the following home equity plan disclosures, as applicable:

1. A statement of conditions under which creditor may take certain action, as described in Section 226.5b(d)(4)(i);

2. The payment information described in Section 226.5b(d)(5)(i) and (ii) for both the draw period and any repayment period;

3. A statement that negative amortization may occur, as described in Section 226.5b(d)(9);

4. A statement of any transaction requirements, as described in Section 226.5(d)(10);

5. A statement regarding tax implications, as described in Section 226.5b(d)(11);

6. A statement that the APR imposed under the plan does not include costs other than interest, as described in Sections 226.5b(d)(6) and (d)(12)(ii); and

7. The variable-rate disclosures described in Sections 226.5b(d)-(12)(viii), (x), (xi), and (xii), as well as disclosure described in Section 226.5b(d)(5)(iii), unless these disclosures were provided at time of application in a form that consumer could keep and included a representative payment example for category of payment option consumer chose. (12 CFR 226.6)

This disclosure must be made to each consumer having the right to rescind under Section 226.15(b). (12 CFR 226.5(d))

Before the first transaction is made under the plan. (12 CFR 226.5(b))

Terminology used must be consistent with terminology used on the periodic statement.

Annual statement of billing rights (“Long Form Notice”) (12 CFR 226.9)

All consumers or each consumer entitled to receive a periodic statement for any one billing cycle. (12 CFR 226.9(a)(1).)

At least once per calendar year, at intervals of not less than 6 months nor more than 18 months.

Alternatively, lender may mail or deliver summary statement on or with each periodic statement in the form substantially similar to Appendix G of Reg. Z.

Disclosures for supplemental credit devices and additional features (12 CFR 226.9(b)): 1. Finance charge terms the same as previously disclosed:			Must be clear, conspicuous and in a written form that consumer may keep.
a. W/in 30 days after mailing or delivering initial disclosure statement.		N/A	No add’l disclosure necessary.
b. More than 30 days after mailing or delivering initial disclosure statement: creditor must disclose that device or feature is for use under terms previously disclosed.	To any consumer who is primarily liable on account.	Before the consumer uses the feature or device for the first time.
2. Finance charge terms differ from those previously disclosed: Must disclose any finance charge disclosures required in initial disclosure statement that apply to added feature or device.	To any consumer who is primarily liable on account.	Before the consumer uses the feature or device for the first time.

Written notice of change in terms required to be disclosed under Section 226.6 or required minimum periodic payment is increased. (12 CFR 226.9(c))	Only to consumers who are affected by the change, and of those consumers, to any consumer who is primarily liable on the account. (12 CFR 226.5(d))	At least 15 days prior to effective date of change. (12 CFR 226.9(c)(1)	Disclosure delivered or mailed. 15-day requirement does not apply if change has been agreed to by consumer, or if periodic rate or other finance charge is increased because of consumer’s delinquency or default.
	A complete new set of initial disclosures containing the changed term complies with Section 226.9(c) if change is highlighted on disclosure statement, or if disclosure statement is accompanied by letter or some other insert that indicates or draws attention to term change.		Notice is not required for changes in late payment charges, charges for documentary evidence, or over-the-limit charges; a reduction of any component of a finance or other charge; suspension of future credit privileges or termination of an account or plan; or when change results from an agreement involving a court proceeding, or from consumer’s default or delinquency (other than increase in periodic rate or other finance charge).
Notice for home equity plans. (12 CFR 226.9(c)(3))	A copy of security agreement describing collateral securing consumer’s account may be used as notice, when term change is the addition of a security interest or addition or substitution of collateral. To each consumer who is affected.	Not later than 3 business days after action is taken.	Required if creditor prohibits additional extensions of credit or reduces credit limit applicable to home equity plan per Section 226.5b(f)(3)(i) or 226.5b(f)(3)(vi). Notice not required if creditor freezes or reduces a credit line. Notice must be mailed or delivered and must include specific reasons for the action. Also, if creditor requires that consumer request reinstatement of credit privileges in writing, notice must also state this.

Finance charge imposed by person other than card issuer at time of transaction. (12 CFR 226.9(d))

To any consumer who is primarily liable on the account, per 12 CFR 226.5(d)). However, common sense dictates that since disclosure may be given orally, it may be given to just those consumer(s) with whom the creditor is dealing before the transaction is made, if given orally, and to the consumer who is primarily liable, if in writing.

Prior to imposition of finance charge.

Disclosure may be given orally or in writing.

Notice of Right to Rescind (12 CFR 226.15)

2 copies to each consumer entitled to rescind, but only 1 copy to each if the notice is delivered by electronic communication, as provided in Section 226.36(b). (12 CFR 226.15(b))

Recommend that provide at the time material, initial disclosures are provided under Section 226.6.

Rescission right is held by each consumer whose ownership interest in consumer’s principal dwelling will be subject to security interest. Rescission right does not apply to non-resident consumer. If consumer rescinds, consumer is not liable for any amount, including finance charge. Rescission right extends to: each credit extension made under the plan; the plan when the plan is opened; a security interest when added or increased to secure an existing plan; and the increase when a credit limit on the plan is increased. The consumer does not have the right to rescind each credit extension made under the plan if such extension is made in accordance with a previously established credit limit for the plan.

Advertising (12 CFR 226.16)

Actually available terms (12 CFR 226.16(a)

If advertisement states specific credit terms, it must state only those terms that are actually or will be arranged or offered by the creditor. (12 CFR 226.16)

If terms required to be disclosed under 226.6 are set forth in an advertisement, the ad shall also clearly and conspicuously set forth the following:

1. Any minimum, fixed, transaction, activity or similar charge that could be imposed.

2. The APR, as determined under Section 226.14(b). If plan provides for variable periodic rate, that fact shall be disclosed.

3. Any membership or participation fee that could be imposed. (12 CFR 226.16(b))

The disclosures given per Section 226.5a do not constitute advertising terms for purposes of Section 226.16.

Catalogs or other multiple-page advertisements; electronic advertisements – if information is given in a table or schedule in sufficient detail to permit determination of the disclosures required by Section 226.16(b), it shall be considered a single ad if:

1. The table or schedule is conspicuously set forth; and

2. Any statement of terms set forth in Section 226.6 appearing elsewhere in the catalog or ad clearly refers to page or location where table or schedule begins.

There is compliance with Section 226.16(c) if table or schedule of terms includes all appropriate disclosures for a representative scale of amounts up to the level of more commonly sold higher-priced property or services offered.

Additional requirements for home equity plans: 1. Terms that require additional disclosures – if any terms required to be disclosed under Section 226.6(a) or (b) or the payment terms of the plan are set forth, affirmatively or negatively, in an advertisement for home equity plan subject to Section 226.5b, the advertisement shall also clearly and conspicuously set forth the following: Any loan fee that is a percentage of credit limit under the plan and an estimate of any other fees imposed for opening the plan, stated as a single dollar amount or a reasonable range. Any APR, as determined under Section 226.14(b). The maximum APR that may be imposed in a variable-rate plan. (12 CFR 226.16(d)(1))
2. Discounted and premium rates	If ad states an initial APR that is not based on the index and margin used to make later rate adjustments in a variable-rate plan, the ad shall also state the period of time such rate will be in effect and, with equal prominence to the initial rate, a reasonably current APR that would have been in effect using index and margin. (12 CFR 226.16(d)(2))
3. Balloon Payment	If ad contains a statement about any minimum periodic payment, the ad shall also state, if applicable, that a balloon payment may result. (12 CFR 226.16(d)(3))
4. Tax implications	An ad that states that any interest expense incurred under the home equity plan is or may be tax deductible may not be misleading. (12 CFR 226.16(d)(3))
5. Misleading Terms	An ad may not refer to a home equity plan as “free money” or contain a similarly misleading term.

TILA Disclosures - Closed-End Loans

Type of Disclosure	# of Disclosures	Timing	Explanation
General Disclosure Requirements (12 CFR 226.17)
Form of Disclosures	Any consumer who is primarily liable. However, if transaction is rescindable under Section 226.23, the disclosures shall be made to each consumer who has the right to rescind, except that disclosures required under §226.19(b) need only be provided to the consumer who expresses an interest in a variable-rate program.	Generally, before consummation of the transaction. In certain residential mortgage transactions, special timing requirements are set forth in Section 226.19(a). In certain variable-rate transactions, special timing requirements are set forth in Sections 226.19(b) and 226.20(c).	Disclosures required must be made clearly and conspicuously in writing, in a form that the consumer may keep. The disclosures must be grouped together, shall be segregated from everything else, and shall not contain any info not directly related to disclosures required under §226.18. The itemization of the amount financed under §226.18(c)(1) must be separate from other disclosures made under that section.
		In certain transactions involving mail or telephone orders or a series of sales, the timing of disclosures may be delayed per Section 226.17(g) and (h).	The disclosures may include an acknowledgment of receipt, the date of the transaction, and the consumer’s name, address and account number.
			The following disclosures may be made together with or separately from other required disclosures: creditor’s identity under §226.18(a), the variable rate example under §226.18(f)(1)(iv), insurance or debt cancellation under §226.18(n), and certain security interest charges under §226.18(o).
Finance Charge and APR (12 CFR 226.17(a)(2))			Disclosure of these items must be more conspicuous than any other disclosure, except the creditor’s identity under §226.18(a).
Early disclosures: If disclosures required by Subpart C of Reg. Z are given before the date of consummation of the transaction and a subsequent event makes them inaccurate, the creditor shall disclose before consummation: 1. Any changed term unless the term was based on an estimate per §226.17(c)(2) and was labeled an estimate. 2. All changed terms, if APR at time of consummation varies from APR disclosed earlier by more than 1/8 of 1 percentage point in a regular transaction, or more than ¼ of 1 percentage point in an irregular transaction, as defined in §226.22(a).	Any consumer who is primarily liable. However, if transaction is rescindable under Section 226.23, the disclosures shall be made to each consumer who has the right to rescind.	Generally, before consummation of the transaction.	(12 CFR 226.17(f))
For each transaction, the following must be disclosed, as applicable: 1. The identity of creditor; 2. Amount financed, and a brief description, such as the amount of credit provided to you or on your behalf; 3. Itemization of amount financed, including GFE; 4. Finance charge and a brief description, such as “the dollar amount the credit will cost you;” 5. APR and a brief description such as “the cost of your credit as a yearly rate;” 6. Variable rate, if APR may increase (see notes under “Explanation”); 7. Payment schedule; 8. Total of payments with explanation such as “the amount you will have paid when you have made all scheduled payments; 9. Demand feature; 10. Whether or not a prepayment penalty for a simple interest type finance charge will be imposed or whether or not consumer is entitled to a prepayment rebate disclosure for other types of finance charges; 11. Late payment charges; 12. Security interest; 13. Insurance and debt cancellation (items required by §226.4(d); 14. Certain security interest charges per §226.4(e); 15. Contract reference per §226.18(p); 16. Assumption policy; and 17. Required deposit disclosure, if applicable. (12 CFR 226.18)	Any consumer who is primarily liable. However, if transaction is rescindable under Section 226.23, the disclosures shall be made to each consumer who has the right to rescind.	Creditor must make good faith estimates of the disclosures required by §226.18 before consummation, or shall deliver or place them in the mail not later than 3 business days after the creditor receives the consumer’s written application, whichever is earlier. However, if APR at time of consummation varies from APR disclosed earlier by more than 1/8 of 1 percentage point in a regular transaction, or more than ¼ of 1 percentage point in an irregular transaction, creditor must disclose all the changed terms no later than consummation or settlement. (12 CFR §226.19(a))	Variable rate disclosure: If APR may increase after consummation secured by consumer’s principal dwelling w/term greater than 1 year: (i) the fact that transaction contains a variable rate feature; and (ii) a statement that variable-rate disclosures have been provided earlier. (12 CFR §226.18(f)(2))
In variable-rate transactions, if APR may increase after consummation in a transaction secured by consumer’s principal dwelling with a term greater than one year, the lender must provide the following disclosures at the time of providing an application form or before the consumer pays a non-refundable fee, whichever is earlier: 1. The booklet titled Consumer Handbook on Adjustable Rate Mortgages (CHARM), or a suitable substitute. 2. A loan program disclosure for each variable-rate program in which a consumer expresses an interest that includes the following: The fact that the interest rate, payment, or term of loan can change; The index or formula used in making adjustments, and a source of information about the index or formula; An explanation of how the interest rate and payment will be determined, including an explanation of how the index is adjusted, such as by the addition of a margin; A statement that the consumer should ask about the current margin value and current interest rate; The fact that interest rate will be discounted, and a statement that consumer should ask about the amount of the discount; The frequency of interest rate and payment changes; Any rules relating to changes in the index, interest rate, payment amount, and outstanding loan balance, including, i.e., an explanation of interest rate or payment limitations, negative amortization, and interest rate carryover. At the creditor’s option, either: (1) an historical example illustrating what changes in interest rates would have done to a variable rate $10,000 loan over 5, 15 or 30 years, depending on term of loan; or (2) the initial and maximum interest rates and payments for a $10,000 loan originated at an initial interest rate (index value plus margin, adjusted by amount of any discount or premium), and statement that periodic payment may increase or decrease substantially depending on changes in rate. An explanation of how the consumer may calculate the payment for the loan amount to be borrowed based on either: (1) the most recent payment shown in the historical example; or (2) the initial interest rate used to calculate the maximum interest rate and payment in the worst case example. The fact that the loan program contains a demand feature; The type of information that will be provided in notices of adjustments and the timing of such notices, A statement that disclosure forms are available for the creditor’s other variable-rate loan programs. (12 CFR 226.19)	Any consumer who is primarily liable. However, if transaction is rescindable under Section 226.23, the disclosures shall be made to each consumer who has the right to rescind.	Generally, creditor must give disclosures at time application form is provided or before the consumer pays a nonrefundable fee, whichever is earlier. However, if credit or receives a written application through an intermediary agent or broker, creditor must deliver disclosures or place them in the mail not later than 3 business days after creditor receives written application. If consumer requests application by telephone, creditor must send early disclosures with application. If application form included with mail solicitation, creditor must also send disclosures. For electronic applications, consumer should be able to access the disclosures (including brochure) electronically.	Information provided pursuant to variable-rate regulations of other federal agencies may be substituted for the disclosures required under §226.19(b).
Subsequent Disclosures: 1. Refinancings - New disclosures must be provided to the consumer. 2. Assumptions – New disclosures must be given to the subsequent consumer, based on remaining obligation.			If finance charge originally imposed on existing obligation was an add-on or discount finance charge, the creditor need only disclose: 1. The unpaid balance of obligation assumed; 2. The total charges imposed by creditor in connection with assumption; 3. The information required to be disclosed under §226.18(k), (l), (m) and (n); 4. The APR originally imposed on obligation; 5. The payment schedule under §226.18(g) and total of payments under §226.18(h) based on remaining obligation.
3. Variable-Rate Adjustments - At least once each year during which an interest rate adjustment is implemented w/o an accompanying payment change, and at least 25, but not more than 120 calendar days before a payment at a new level is due, the following disclosures, as applicable, must be delivered or placed in the mail: The current and prior interest rates. The index values upon which the current and prior interest rates are based. The extent to which the creditor has foregone any increase in the interest rate. The contractual effects of the adjustment, including the payment due after the adjustment is made, and a statement of the loan balance. The payment, if different from that referred to in §226.20(c)(4), that would be required to fully amortize the loan at the new interest rate over the remainder of the loan term.			Information provided in accordance with variable-rate subsequent disclosure regulations of other federal agencies may be substituted for disclosure required by §226.20(c). An adjustment to the interest rate with or without a corresponding adjustment to the payment in a variable-rate transaction subject to §226.19(b) requires new disclosures to consumer.
Notice of Right of Rescission must be on a separate document that identifies the transaction and clearly and conspicuously discloses the following: 1. The retention or acquisition of a security interest in the consumer’s principal dwelling; 2. The consumer’s right to rescind the transaction; 3. How to exercise the right to rescind, with a form for that purpose, designating the address of the creditor’s place of business; 4. The effects of rescission, as described in Section 226.23(d); and 5. The date the rescission period expires. (12 CFR 226.23)	Two copies of notice of right to rescind and one copy of material disclosures must be given to each consumer entitled to rescind (one copy to each if delivered electronically).	Consumer may exercise the right to rescind until midnight of the third business day following consummation, delivery of the notice required by §226.23(b), or delivery of all “material disclosures,” as defined in Footnote 48 of §226.23(a)(3), whichever occurs last. If the required notice or material disclosures are not delivered, the right to rescind shall expire 3 years after consummation, upon transfer of all of the consumer’s interest in the property, or upon sale of the property, whichever occurs first.	Use appropriate model form in Appendix H or substantially similar notice. Not applicable to residential mortgage transactions. When more than one consumer has the right to rescind, the exercise of the right by one consumer shall be effective as to all consumers. The right to rescind does not apply to: 1. A residential mortgage transaction; 2. A refinancing or consolidation by the same creditor of an extension of credit already secured by consumer’s principal dwelling. However, will apply if new amount financed exceeds unpaid principal balance, any earned unpaid finance charge on existing debt, and amounts attributed solely to costs of refinancing or consolidation. 3. A transaction in which a state agency is a creditor. 4. An advance, other than an initial advance, in a series of advances or in a series of single-payment obligations that is treated as a single transaction under Section 226.17(c)(6), if notice required by §226.23(b) and all material disclosures have been given to consumer. 5. A renewal of optional insurance premiums that is not considered a refinancing under Section 226.20(a)(5).
Advertisement of terms requiring additional disclosures - if any of the following is set forth in an advertisement, the advertisement shall meet the requirement of § 226.24(c)(2): 1. The amount or percentage of any down payment; 2. The number of payments or period of repayment; 3. The amount of any payment; 4. The amount of any finance charge. (12 CFR Section 226.24)			Section 226.24(c)(2) provides that an advertisement stating any of the terms set forth in §226.24(c)(1) shall state the following terms, as applicable: 1. The amount or percentage of the down payment; 2. The terms of repayment; 3. The APR, using that term, and if the rate may be increased after consummation, that fact. An example of one or more typical extensions of credit with a statement of all the terms applicable to each may be used.
Required Disclosures for Section 32 Loans: 1. Notice: “You are not required to complete this agreement merely because you have received these disclosures or have signed a loan application. If you obtain this loan, the lender will have a mortgage on your home. You could lose your home, and any money you have put into it, if you do not meet your obligations under the loan.” 2. The APR; 3. The amount of any regular payment and any balloon payment; 4. For variable-rate transactions, a statement that the interest rate and monthly payment may increase, and the amount of the single maximum monthly payment, based on the maximum interest rate required to be disclosed under §226.30; 5. For a mortgage refinancing, the total amount consumer will borrow, as reflected by face amount of note; and where amount borrowed includes premiums or other charges for optional credit insurance or debt-cancellation coverage, that fact shall be stated, grouped together with the disclosure of the amount borrowed. (12 CFR § 226.32)	Any consumer who is primarily liable. However, if transaction is rescindable under §§ 226.15 or 226.23, the disclosures shall be made to each consumer who has the right to rescind. (12 CFR §226.31(e))	At least 3 business days prior to consummation of the mortgage transaction. (12 CFR §226.31(c))	If creditor changes any term that makes the disclosures inaccurate, new disclosures shall be provided per requirements of Sub-part E of Reg. Z. Telephone Disclosures: Creditor may provide new disclosures by telephone if consumer initiates the change and if, at consummation: Creditor provides new written disclosures; and Consumer and creditor sign a statement that new disclosures were provided by telephone at least 3 days prior to consummation. Does not apply to: 1. A residential mortgage transaction; 2. A reverse mortgage transaction subject to Section 226.33; 3. An open-end credit plan subject to subpart B of Reg. Z.
Disclosures related to reverse mortgages: 1. Other disclosures required under Reg. Z (see above); 2. Notice: A statement that the consumer is not obligated to complete the reverse mortgage transaction merely because consumer has received the disclosures required by this Section or has signed an application for a reverse mortgage loan; 3. Total annual loan cost rates; 4. Itemization of pertinent information – loan terms, charges, the age of youngest borrower, and appraised property value; 5. Explanation of table of total annual loan cost rates; 6. Projected total cost of credit, including following factors, as applicable: Costs to consumer; Payments to consumer; Additional creditor consumption; Limitations on consumer liability; Assumed annual appreciation rates; and Assumed loan period. (12 CFR § 226.33)		Creditor must furnish disclosures at least 3 business days prior to: (1) consummation of a closed-end transaction; or (2) the first transaction under an open end credit plan. (12 CFR 226.31(c)(2))	Disclosure should be substantially similar to model form in paragraph (d) of Appendix K.
Requirements for Electronic Communication: Under E-Sign Act, creditor must obtain a consumer’s affirmative consent when providing disclosures related to a transaction. Disclosures required under §§226.5a, 226.5b(d) and 226.5b(e), 226.16, 226.17(g)(1) through (5), 226.19(b) and 226.24 are deemed not to be related to a transaction. When a disclosure provided by electronic communication is returned to a creditor undelivered, the creditor shall take reasonable steps to attempt redelivery using information in its files. (12 CFR 226.36) An electronic signature as defined under the E-Sign Act satisfies any requirement under Reg. Z for a consumer’s signature or initials.			A creditor that uses electronic communication to provide disclosures shall: 1. Send disclosure to consumer’s electronic address; or 2. Make the disclosure available at another location such as an Internet web site; and Alert the consumer by sending a notice to the consumer’s electronic address (or to a postal address, at creditor’s option). The notice shall identify the account involved and the address of the Internet web site or other location where the disclosure is available; and Make the disclosure available for at least 90 days from the date the disclosure first becomes available or from the date of the notice alerting consumer of the disclosure, whichever comes later. A creditor need not comply with 2(a) and 2(b) above for the disclosures required under §§226.5a, 226.5b(d) and 226.5b(e), 226.16, 226.17(g)(1) through (5), 226.19(b), and 226.24.

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New/Revised Documents - February 2005

In order to keep DocMagic software users better apprised of document changes and additions as they occur, DSI posts listings of all newly created and revised documents. Here is the list of forms created or modified in January, 2005.

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TILA Statute of Limitations Tolled for Failure To Provide Loan Docs in Spanish

The following article is reprinted from Basis Points® , Vol. 4, Issue 1, Copyright © 2005, with the permission of CounselorLibrary.com, LLC. All Rights Reserved. Further reproduction is prohibited without permission.

NOTE: As Basis Points® will be withdrawn from publication after its January, 2005 issue, this will be the last featured article in The Compliance Wizard.

A statute of limitations only works to bar claims if it is not tolled on equitable principles. These principles can include that loan documents for a transaction involving a Spanish-speaking borrower were not provided in Spanish.

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