We’ve heard that some lenders are providing the CD earlier in the process when they don’t have the final numbers, effectively preparing it immediately upon receiving the title insurance binder. Is this meeting the intent of the rule? What are the repercussions of doing this?

That’s a great question and I think this is one that touches upon the black hole because under the most common reading of comment 19(e)(4)(ii)-1, a lender can only use changed circumstances disclosed on the CD for tolerance purposes if they learned of those changed circumstances 6 business days or fewer before consummation, closing.

If the lender then provides the CD too early, let’s say 2 weeks before closing, they could result, in about a week, (the time period before that 6 business day window under comment 19(e)(4)(ii)-1) that period, falling into the black hole where any changed circumstances that come up they wouldn’t be able to then use for tolerance purposes. So basically by providing the CD too early they are creating their own black hole.

I think that’s one of the reasons why that comment creates that disincentive, to prevent providing the CD too early. The CD is meant to be a final disclosure, it actually says that on the top of page 1, it says this is a final statement. And by providing it too early, it really could confuse the borrower because it says its the final numbers, and then there would be a significant amount of changes from let’s say two weeks before closing, and so that’s one of the reasons why I think that comment does create that disincentive because it doesn’t want the CD provided too early.

So, aside from a tolerance issue, I think there could be potential UDAAP issues because it could also be confusing and unfair to borrowers to tell them that this is going to be the actual number, and then at closing essentially is when the next corrected CD technically has to be provided to the consumer, give them a cash to close that’s much greater, so there could be some real UDAAP issues there as well to be concerned about.

Answered By: Richard Horn