Loan Disclosure Modification
Question: As an alternative to making a 366 month loan to accommodate this customer, can we go to closing with a traditional mortgage and disclosure for 360 months and then modify it after the loan is closed but before the first payment is due?
Answer: While technically this may not set off any mandatory Truth in Lending violation alarms, this approach has its problems. Problem number one is that Truth in Lending disclosures must be based on what you know at the time of settlement. On the one hand, you could argue that you do intend to make the 30-year loan as disclosed. But it is also clear that you also know that the loan will be modified. Given the fact that you plan to make the modification, it is equally valid to argue that the disclosures did not accurately reflect what the parties knew and expected at settlement.
In addition to this Truth in Lending issue, there could be safety and soundness concerns. You would be closing on a 30-year loan before the borrower is ready and qualified to meet your underwriting standards. Your safety and soundness examiners could be less than pleased.
Because of these concerns, you should not make a habit of this approach. In fact, we recommend that you avoid it altogether.
Copyright © 2005 Compliance Action. Originally appeared in Compliance Action, Vol. 10, No. 11, 10/05
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