[timob1973]

Here are the facts:

John Doe has a first mortgage with ABC Bank on his principle dwelling. John comes into the Bank to refinance his loan to get a lower rate. Loan officer and borrower decide that the Secondary Market option is the best way to refinance the debt. The Secondary Market lender is responsible for approving/denying the loan application. Once the loan is approved, the loan will close in ABC’s name (table funded) and then subsequently sold to the Secondary Market lender (within a few days…the loan is sold individually and not as part of a group of loans). No new money is being advanced.

Is the refinancing subject to rescission?

If the loan is not subject to rescission but rescission documents were provided to the borrower at closing and the rescission was not honored (i.e. funds were disbursed prior to the rescission period ending), is this an issue (potentially UDAAP and or TILA)?

Your help is greatly appreciated!!

Topic

[rcooper]

Technically, I don’t think the rescission would be required since you are closing in the same creditor that extended the initial extension of credit. However, I think it is prudent to look at the intent of the regulation which provides an exemption to rescission for a refinance (new money would not qualify) if it the same creditor – if you know you are making the loan on behalf of another lender (you will be immediately selling the loan) it may be best to give the right of rescission. Also, what are the secondary market lenders requirements – do they require rescission be provided? I would consider both of these when making the decision.

I think if you provide a disclosure you are required to comply with those disclosures. If you do not comply, it has potential to turn into a UDAP violation.

[jholzknecht]

I agree with Robin’s conclusions.

Since you granted the consumer the right to rescind he or she has the right even though the transaction appears to be exempt from the regulatory requirement. If the consumer wanted to rescind and you refused the request it is likely that you would have a problem (UDAP). It is unlikely that providing the proceeds before the expiration of the three-day rescission period will be a concern since the transaction is exempt from the requirement and the consumer benefits from the action.

[Author]

Replies