Our process is to disclose a new TIL if the APR changes more then .125% up or down. I have our LOs arguing with me because a lot of our competitors are not redisclosing when the APR decrease even if it is more then .125.Some LOs came from financial institutions that do not redisclose if it lowers. I have read a few competitors web site and it does state that they only redisclose if the APR increases more then .125 and the borrower needs to wait the 3 days. Where is the loop hole in the reg that states this? Does anyone know I'm frustrated?

I understand your frustration, as this is an issue that many banks have had - to redisclose or not to redisclose.

We do. We sell all loans to the secondary market and they have interpreted MDIA exactly as it's written - if there is a tolerance violation in either direction then you are required to redisclose and wait the three day period from the time the borrower receives the new disclosures.

There has been some guidance from the Philadelphia FRB that states it's not necessary to redisclose if the closing APR is less than what was originally disclosed - however, you would have a hard time justifying your position if questioned by an examiner and you don't have the reg or the OSC to refer to.

I for one believe you have to redisclose either way unless you can without a shadow of a doubt show the APR was overstated in error. Decreasing the rate does not, IMO, cause the APR to be overstated due to an error in the disclosure.

This is the thread where David posted the Philly Q&A:

Previous thread

This is my take on it from July of last year:

Additional tolerance for mortgage loans. In a transaction secured by real property or a dwelling, in addition to the tolerances applicable under paragraphs (a)(2) and (3) of this section, if the disclosed finance charge is calculated incorrectly but is considered accurate under §226.18 (d)(1) or §226.23(g) or (h), the disclosed annual percentage rate shall be considered accurate:

(i) If the disclosed finance charge is understated, and the disclosed annual percentage rate is also understated but it is closer to the actual annual percentage rate than the rate that would be considered accurate under paragraph (a)(4) of this section; Note that this section also refers to the rate being closer to the actual rate.

(ii) If the disclosed finance charge is overstated, and the disclosed annual percentage rate is also overstated but it is closer to the actual annual percentage rate than the rate that would be considered accurate under paragraph (a)(4) of this section. This section states the overstated APR is only accurate under (a)(4) (which refers to .18(d)(1)) if the disclosed APR is closer to the actual APR. This refers back to the example in the OSC of the APR being quoted as 9% but the actual APR would be 8.65% then a disclosure of 8.5% to 9.25.% would be considered accurate. So in each of these cases you are going to have to determine if the "overstated" APR is actually closer to the Actual APR. Who's going to be responsible for these calculations? IMO an overstated APR is not automatically accurate! I also don't want to put the burden on document prep people to have to figure out if the APR is out of tolerance due to a finance charge or if the overstated APR is closer to the actual APR. Way too much room for error. Until the agencies see fit to release an official interpretation I will use the KISS method and redisclose either way. For us it may affect 2 out of 10 loans, most likely 1 out of 10.


If you take each individual section on their own you can put an argument together to support your position either way, but if you take the sections as a whole as they are referenced then there are other considerations to be taken, such as is the disclosed APR actually closer to the actual APR? If not then it is not accurate, and again I ask who are you going to make responsible for making these determination whether the disclosed APR is accurate under the "closer" rule?

Again I don't disagree that we should not have to redisclose when the ETIL APR is higher than the actual APR but I just don't see the exemption as it is currently written without an official interpretation from the agencies themselves.

As Dan noted, I believe the Phil FRB clarified that you don't have to redisclose IF the APR and FC are lowered in correspondence to one another. For instance, you lower the interest rate which lowers the FC or you omit a FC which lowers the APR. If the customer buys down the rate, you would have to redisclose.

Just to add a bit more mud to the water, one FRB office doesn't always agree with another. For me, until Chicao FRB endorses Philly's take on it, I'm redisclosing up or down no matter what.

Wow! The Chicago FRB doesn't agree with what was published in the FRB's Consumer Compliance Connection? Yes, it is written by the Phil FRB, but it is reviewed and supported by the FRB Board of Governors. It was also reproduced by the Board of Governors (Washington DC level) in CA 09-12 on 11/9/09. I don't think your local examiners have a chance on this one.

Here's a link to CA 09-12: http://www.federalreserve.gov/boarddocs/caletters/2009/0912/caltr0912.htm

David, what am I missing? That letter is addressing balloon loans and the repayment ability. I didn't see where the APR redisclosure was addressed.

Thanks, David. If I ever decide to change, I've got the info to back me up now. Being safe rather than sorry is suiting me well so I think I'll leave the status quo.

You're not missing anything. I looked at the wrong document.

Here's the Consumer Compliance Outlook from the 3Q of 2009 that addresses MDIA and APR overages. See Q&A #6:
http://www.philadelphiafed.org/bank-reso...arter/q3_03.cfm

Sorry for the confusion.

BTW, the FRB Board reviews these documents. They stated this at the ABA Conference during the FRB Breakout Session. I don't see how one FRB Office could disagree with this info.

Definitely that is the full Fed's position on this. Various Fed offices publish on topics but it is always the position of the Fed.

I would be very careful and deliberate in my documentation in relying on Q&A #6 to not redisclose. It doesn't give you a "blanket" authority to not redisclose for an overstated APR.

"Thus, some overstated APRs may require corrected disclosures just as understated APRs do."

and

"Creditors should closely examine these two paragraphs when determining whether an APR that is overstated is inaccurate and thus requires corrected disclosures and a three-business-day waiting period."


I might, and I repeat might (which translate to doubtful) buy into not having to redisclose if you decide to waive a fee, but I would never buy into not redislosing if you renegotiate the rate.

Who is, or will you make responsible to review and document the APR is out of tolerance subject to the provisions cited in Q&A #6? IOWs, as previously stated you don't have a blanket authority to not redisclose for an overstated APR. You still have to document and justify it did not require redisclosing under 226.22.

I agree it's not a blanket authority, however, I discussed it with ATL FRB way back when all this first started and after I dissected all the references concerning the APR tolerance. The way they interpreted it (and this is nothing new...the interpretation, that is!) was as David detailed above with the corresponding lowering of either the APR or the FC with a corresponding lowering of FC/APR as a result.

They additionally gave an example (that really happened) of a situation that would NOT fall under tolerance and that was when a FI "guessed" at the APR because it was "almost always" some percentage higher than the rate.

I would additionally agree that buying down the rate, thus increasing the FC, would not fall under this tolerance.

FWIW, simple overdisclosures...we do not require a 3-day wait. I don't know of any of our investors on the secondary market that require it either.

FWIW, I have a slide printed from a training session put on by the KC FDIC stating they expect redisclosure for both overstated and understated APR's.

FWIW - The TILA proposal issued last year included a section specifying that if the APR decreased by more than the tolerance, that redisclosure was not necessary. That would lead me to believe that they are expecting it under the current rules, but that is just my opinion (and worth almost as much as you paid for it).

I guess one thing is for sure...time will tell and they will not all act in the same manner!

They never do!

You're right. The FDIC has made several interpretations of the FRB's regulations and have been wrong:

1. HMDA Temporary financing (an email sent out by the KC FDIC in 11/05) was entirely wrong saying construction and bridge loans were exclusive examples. The FRB updated their FAQs at the FFIEC website to say these were inclusive examples.

2. June 2009, the FDIC Supervisory Insights (Summer 2009 edition) said banks can no longer make balloon loans of < 7 years if it's a HPML. The FRB issued a Q&A in September that basically said "if we wanted to ban balloon loans, we would have done so. Banks CAN make HPML with balloons of < 7 years.

3. As you stated, the KC Regional office of the FDIC said overstated APR's had to be redisclosed. The FRB put out a Q&A (referenced above) that said they were wrong.