Does APR Decrease Trigger New 3- Day Waiting Period?
I find the full rule pretty complicated, so let's discuss what we need to know for real-life lending scenarios...
Scenario/Question
It's the end of the month, you're trying to close a purchase loan. Closing has already issued a Closing Disclousre. That was last Friday, now it's Wednesday. You want close on this Friday. With some last minute tinkering, the loan is adjusted to remove a $2,500 mortgage insurance premium (borrower paid). This drops the APR by 0.26. We know we need a new Closing Disclosure. But do we need to have a new 3-day waiting period, or can we still close on Friday?
Short Answer
No, normally an APR decrease will not trigger a new 3-day waiting period. Yes, you can close this loan on Friday.
Full Answer/Explanation
The actual rule says that generally a new 3-day waiting period is required whether the APR increases or decreases (by a set margin, either 1/8 or 1/4).
But there is an exception (which quickly becomes less of an exception and more the general rule) ...
So I know it's a little convoluted, but stick with me. The APR decreasing does not trigger a new 3-day waiting period if it decreases because of a reduction in the finance charges. That's because generally, with mortgage loans, an overstated finance charge is considered accurate. Finance charges are fees paid to the lender, interest, points, and certain other loan fees (e.g., mortgage insurance premium, some fees paid to the settlement agent, etc.).
Practically speaking, that means that a new 3-day waiting period is only required if the APR decreases for some reason unrelated to a decrease in finance charges.
And, of course, you ask, "when would that happen Ben?" Now I'm not going to claim to be perfect. And I've thought about this to an embarrassing extent. I actually can't come up with any good examples. I'm assuming there is an obvious answer that is just escaping me - why else would it be written into the rule? Maybe if the loan term changes, e.g., 30-year to 15-year? Maybe if the index changes dramatically (but you should be able to use the same index throughout the loan process)? I guess maybe if the product changes from a fixed to an ARM (but in that case a new 3-day waiting period is required anyway for a different reason).
Bottom line - an APR decrease should not trigger a new 3-day waiting period, but when this happens, just make sure it's decreasing because of a decrease in finance charges. (And if it's decreasing for another reason, send me an e- mail!)
In Other News:
Not that I follow soccer, but is it actually true Tom Hanks won $730,000 after placing a $150 bet on Leicester City to win this year on 5,000 to 1 odds?
So the big news this week is obviously the CFPB announcing that they're going to make some changes to the TRID Rule. Sounds serious, but don't hold your breath - the proposed rule won't be issued until summertime. And then there still needs to be a Notice & Comment period before anything is official.
The CFPB's annual fair lending report is out. Worth a read probably. Don't want to listen to the entire CFPB webinar from April 12th? Well an unofficial written transcript is available here.
It's easy to get bogged down in a state of fear, worrying that we made some HMDA mistakes, or issued some incorrect CDs. Residential lending has been a stressful business the last 5 years. But we're not in this business to be perfect. Everyone makes mistakes - we need to make mistakes to learn from them. As John reminds us, we're in the business of putting people in homes. Do we want to get Fannie's new criteria right? Sure. Do we want to get compliance right? Of course. But there's a bigger reason behind all of that.
"Productive executive staff meetings should be exhausting inasmuch as they are passionate, critical discussions. Pleasant meetings--or even worse, boring ones--are indications that there is not a proper level of overt, constructive, ideological conflict taking place."
- Patrick Lencioni
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