[Dana Staley]

We are seeking clarification on the timing requirements for delivery of the ARM program disclosure and the CHARM. In our most recent review we found that, regardless of how the application is taken, these disclosures are being sent along with other early disclosures within 3 business days of application (including a 1003 for the borrower to sign). Our question is specifically related to applications taken online. We have an online application process by which potential borrowers can upload certain information to “apply” for a loan with us. The system takes enough information to consider the data a completed application, and our timing for sending early disclosures begins at that time. This application then goes to a MLO to start the loan process. On the online application, the borrower is not given the option to apply for a specific loan product (i.e. fixed rate or adjustable). This is determined after the lender and the borrower communicate about the borrower’s needs after the online application has been received. There is no access to program disclosures on the bank’s online application form. In our review we cited that the disclosures are not provided timely because the disclosures are not provided in electronic form at the time the application. The pushback is that the applicant is simply applying for a mortgage when they apply online, not for a specific product; therefore it is unknown at the time of online application as to the program in which the borrower has interest, and that the borrower is provided the disclosures at the time the initial 1003 is sent for the borrower to sign (up to three days after application). Would this be considered a violation of the timing requirements for these disclosures?

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[rcooper]

I think you will probably get different opinions on this depending on who you ask.

I prefer to see the disclosures provided unless it is clearly stated that the consumer is applying only for a fixed rate product; meaning for all applications where the loan type isn’t specified (and there is a possibility the customer is interested in an ARM/rate may increase), I would prefer to provide the disclosures, as you would when it is indicated that the app is for an ARM product, due to a strict reading of the regulation below.

1026.19(b) (I have bolded for emphasis.)
Except as provided in paragraph (d) of this section, if the annual percentage rate may increase after consummation in a transaction secured by the consumer’s principal dwelling with a term greater than one year, the following disclosures must be provided at the time an application form is provided or before the consumer pays a non-refundable fee, whichever is earlier (except that the disclosures may be delivered or placed in the mail not later than three business days following receipt of a consumer’s application when the application reaches the creditor by telephone, or through an intermediary agent or broker):

However, some read this as if you don’t know that the rate could increase because the customer hasn’t indicated an interest in an ARM product, you aren’t required to provide the disclosures until they express that interest. Again, I prefer to provide the disclosurs unless you know the customer is applying for a fixed rate loan. If your system allows the consumer to apply for a loan but doens’t allow them to indicate what type of loan they are interested in/applying for, I think this could be viewed as a way to avoid providing the required disclosures at the time of application.

[jholzknecht]

I agree with Robin’s comments, but take a little stronger stand on this. The Commentary states, “Creditors must provide the disclosures required by this section (including the brochure) on or with a blank application that is made available to the consumer in electronic form, such as on a creditor’s Internet Web site.” If you have an application form on your website that can be used to apply for an ARM, the disclosures must appear “on or with” that application.

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