As you know, on August 1, 2015, all mortgage lenders will be required to provide applicants with a new, integrated disclosure, the Loan Estimate (which replaces the "Early" Truth in Lending disclosure), and the Good Faith Estimate to maintain compliance.
To help mortgage lending professionals prepare for when this regulation goes into effect, we have defined Mortgage Application, and more importantly what it means to mortgage lenders, mortgage brokers, and lead generators.
Currently, neither TILA, nor RESPA define the term "application". Reg X, however defines an applications as: The submission of a borrowers financial information in anticipation of a credit decision relating to a federally regulated mortgage loan, which shall include the borrowers name, the borrowers monthly income, the borrowers social security number to obtain a credit report, the property address, an estimate of the value of the property, the mortgage loan amount sought, and any other information deemed necessary by the loan originator"
Despite strong industry opposition, the CFPB proposed rule, eliminated the "catch all" criteria of "any other information deemed necessary by the loan originator".
Creditors, brokers, and lead generators will all be affected by this change and will need to consider the information they collect, and how it affects their operations and their relationships with other parties involved in the origination of the mortgage loan.
Here are the differences:
CREDITORS: Mortgage lenders will need to determine whether to request additional information (such as the loan product desired) along with the 6 elements that will constitute an application, or if they will request less than 6 to delay providing the Loan Estimate until later in the application process. Although the creditor may request more than the 6 elements that constitute an application, the creditor is still prohibited from requesting verification information at this stage, which may include request for a purchase and sale agreement.
MORTGAGE BROKERS: Although mortgage brokers are permitted to provide the Loan Estimate, they may need to increase and improve their communication channels with creditors to ensure that applicants receive appropriate disclosures.
LEAD GENERATORS: Lead generators will want to avoid taking an application as defined in the final rule for several reasons.
1st. The taking of an application could trigger state licensing obligations.
2nd. The taking of an application could implicate the loan originator compensation rule.
3rd. Creditors will not want lead generators to take an application and start the 3-day clock.
Accordingly, lead generators will want to avoid taking a key piece of information such as the applicant's Social Security Number (or other unique identifiers obtained to receive a credit report such as a Tax Identification Number).
This change does not affect the definition of "Application" that exists under Regulations B and C.