When a loan estimate is a commitment
Creditors are locked in for 10 days
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CFPB RESPA/TILA Rule Reference: 6.4, page 29, CFPB Detailed summary of the rule
The TILA/RESPA ruling from the CFPB states that, the creditor is officially committed to their Loan Estimate for 10 days if they receive 6 key pieces of information from the borrower. To be considered a true application for a mortgage loan, the borrower must submit the following information to the creditor either written or electronically:
(1) The consumer's name
(2) The consumer's income
(3) The consumer's Social Security number to obtain a credit report (or other unique identifier if the consumer has no Social Security number)
(4) The property address
(5) An estimate of the value of the property
(6) The mortgage loan amount sought
After the creditor issues a Loan Estimate to the borrower, they are making an official commitment to the numbers provided for 10 business days. This commitment is meant to give the borrower ample time to analyze their estimate and potentially shop around for a better estimate from another creditor.
The only scenarios that allow the creditor to back out of this commitment is if the “the creditor determines within the three-business-day period that the consumer’s application will not or cannot be approved on the terms requested by the consumer, or if the consumer withdraws the application within that period.” In this case, the creditor is not required to deliver the Loan Estimate to the consumer, or be held liable for the details of the form if it is delivered to the consumer already.
Making a commitment like this knowing very little about the person asking to borrow money could potentially lead to issues down the road for the creditor and the borrower. If borrowers were able to blindly shop and review creditor’s loan options without either party making an official commitment, both parties would be able to make a better judgment call about the agreement before they’re locked in for a 10-day period.
For more information on the impact to the industry and how technology solutions can help your business mitigate that impact, visit the TilaRespa Knowledge Center.
All information and views expressed or implied are provided without warranty and are only the opinion of Pavaso, Inc. Each participant should seek legal representation for legal interpretation of the ruling and the CFPB directly for final instruction and interpretation. The final rule can be found here.