This article first appeared in the June 18th newsletter Lending Life. Sign up here to receive each weekday.
On Thursday, President Joe Biden signed a bill into law, declaring June 19th, or Juneteenth, a federal holiday. Biden’s order commemorates the date the last enslaved African-Americans were informed that they were free. Wonderful news, right? Wrong.
Reached Friday, many mortgage industry professionals were doing damage control — delaying closings, pushing back notices and modifying loans. Others had already left for the beach.
“It’s a complete nightmare,” said one lender. “I’m almost afraid to talk about it. The feds are putting their own regulatory agencies in such a bind. They won’t be able to enforce anything around this, and then I’m sure the [Consumer Finance Protection Bureau] is going to come in and say something. Can you imagine them issuing fines for violations? It’s a nice idea but the execution was horrific.”
Friday evening, the CFPB acknowledged in a statement that the holiday put lenders in a time crunch. The Bureau noted it would consider the “limited implementation period before the holiday” in its ultimate guidance.
Loan officers across the country initially panicked — “Will there even be wire services?” — although it looks like most financial systems are still operating. The stock market exchanges are still open, as are banks, for the most part. The U.S. Postal Service is still running, and the Federal Reserve isn’t on Juneteenth holiday, either.
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Early this morning, the Federal Deposit Insurance Corporation fired off a missive to lenders, instructing them to use their own best judgment in deciding whether to remain open.
Some loan officers, however, decided to preemptively delay some closings, just in case regulators decide this is the perfect opportunity to crack down on compliance missteps. No one wants any additional attention from the newly-invigorated CFPB.
“We had a closing scheduled for Monday, and Thursday afternoon I had to spring it on everybody that they made it a federal holiday, so we pushed it back,” said a Louisiana-based loan officer. “As soon as I saw the email I said, ‘Well, I’m not going to wait for the verdict, because that means you can’t count Saturday. I’m just going to push it.’”
One Orlando, Florida-based loan officer said she doesn’t mind the new Juneteenth holiday, but it did impact closings for several loans. If closings are delayed, the loan officer said, it could impact the rate lock, the agreement that allows the borrower to lock an interest rate in for a period of time.
Curiously, rate locks don’t depend on business days, but calendar days, so they could lapse as a result of the Juneteenth federal holiday.
It’s “a little messy,” the Orlando loan officer said. “I have closings scheduled on Monday, but because there’s a federal holiday that squeezed in, I have to close on Tuesday, and the rate might have expired. For those running a massive amount of business, it’s a huge problem. It came out of nowhere,” she said.
Another immediate question for loan officers is how to count the right of rescission in light of the Juneteenth holiday. The right of rescission allows refinance, HELOC, or home equity loan borrowers, to walk away within three days of closing.
The rule has been around since the 1968 Truth in Lending Act. When a borrower signs a loan, the clock starts ticking. Normally, however, a new federal holiday is not enacted in less than 72 hours.
What about rescission periods for loans that were signed on Wednesday or Thursday, before the law went into effect? The FDIC’s note to lenders is not very reassuring.
Reads the compliance note: “Whether it will affect the rescission period for loans closed earlier this week (before the signing of the law) is uncertain.”