When is an Application an Application?

Question:

When is an application subject to RESPA, requiring disclosures to be sent? Is it when you have taken the initial 1003 by phone or email, or is it when you have a signed 1003 by customer and have verified income and assets, etc?

Answer:

Answer by Patricia Cashman:It helps if you first remember the basic purpose of the RESPA initial disclosures, which are triggered by receipt of an application. That purpose is to provide the consumer with enough information to "shop around" early on in the process, such as before committing to or being charged any non-refundable fees. If the applicant has provided the creditor with an identification of the proposed property and enough information to "anticipate a credit decision", you have a RESPA covered application.

All you really need to provide the initial disclosures, other than the address, is approximately how much the applicant intends to finance and basic terms. Waiting until you have verified assets, etc. or receiving a copy of a contract will put you on the non-compliant side of this.

3500.2(b) - Application means the submission of a borrower's financial information in anticipation of a credit decision, whether written or computer-generated, relating to a federally related mortgage loan. If the submission does not state or identify a specific property, the submission is an application for a pre-qualification and not an application for a federally related mortgage loan under this part. The subsequent addition of an identified property to the submission converts the submission to an application for a federally related mortgage loan.

Answer:

Answer by David Dickinson:Beginning 1/1/10, the definition changes slightly. It will be: "Application means the submission of a borrower's financial information in anticipation of a credit decision relating to a federally related mortgage loan, which shall include the borrower's name, the borrower's monthly income, the borrower's 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. An application may either be in writing or electronically submitted, including a written record of an oral application."

None of this is verified information. In fact, you can't ask for verification information until the GFE is received by the applicant. Refer to Section 3500.7(a)(5) and page 68212 of the Federal Register dated 11/17/08.

First published on BankersOnline.com 2/15/10