All federally insured credit unions that issue loans secured by a first or second mortgage on the debtors’ residential dwelling must provide additional disclosures to the borrowers.

Credit unions are required to provide the following disclosures to borrowers who apply for a mortgage regardless of whether the loan will be a refinance, home equity, home improvement or most other types of mortgages such as for home improvements or construction of a new home on the mortgaged property:

A. Settlement Costs Booklet:

This booklet can be obtained from CUNA. The booklet should be given to a mortgage applicant either personally at the time of application or mailed to the borrower within three business days after the written application is submitted. Only one copy of the booklet need be provided, even if there is more than one applicant. This booklet does not need to be distributed on a refinancing, although the information contained therein is informative and the credit union may nonetheless desire to provide it to those applying for a refinance.

B. Disclosure Statement:

This new disclosure explains certain rights of the applicant and should either be personally delivered at the time the application is submitted or sent to the member in the mail within three business days after submission of the application. It should be provided to either one or all borrowers. The credit union must have a signed acknowledgement of receipt by each borrower, hence, if borrowers reside at different addresses, one should be individually mailed to each applicant.

C. Good Faith Estimate:

The Good Faith Estimate should either be supplied to the borrower(s) when the application is submitted, or sent by mail to the applicant(s) within three business days after submission of the completed loan application. With the new Good Faith Estimate, lenders are prohibited from requesting or requiring a signature from the Borrower(s). There is, therefore, no blank on the form for the Borrower(s) to sign. The credit union must keep a copy of the Good Faith Estimate that is sent to the Borrower(s) and a log of the date the Good Faith Estimate is sent to the Borrower(s) in the credit union’s file.

D. Controlled Business Arrangement Disclosure:

This new disclosure is available from either of the above form suppliers and will usually be required to be on a separate sheet of paper. This disclosure must be supplied at the time the Good Faith Estimate is provided. The Controlled Business Arrangement Disclosure must identify any companies or individuals with whom the credit union has a business relationship, or any providers of services that the credit union will require for the mortgage. e.g. appraiser, title company, credit union attorney, etc.

This includes any provider of services to the credit union that is required for the loan or is to be paid for by the borrower(s). However, where the referral is from a lender to the borrower(s) the disclosure may be incorporated into a Good Faith Estimate and need not be on a separate sheet of paper.

The credit union may not require the use of all providers, except the lender may require that certain providers be utilized and paid for by the borrower(s), such as an appraiser, title company, credit agency and attorney.

E. Transfer Notice:

This form may be obtained from any mortgage form supply company. This form should be provided to each applicant and provided only to those members whose mortgage servicing is being transferred to another entity. “Servicing” means the collection of mortgage payments and monitoring of the account.

This notice must be sent to the borrowers at least fifteen days prior to any transfer of servicing to another lender. If the credit union is purchasing a mortgage from another lender and the credit union will assume servicing of the loan, the credit union, as a transferee of the servicing, must give the notice to the prospective mortgagors no more than fifteen days prior to transfer.

F. Escrow Account Statement:

This form may also be ordered from one of the mortgage form supply companies identified above. This form need only be given to an applicant if an escrow account is being established to pay property taxes, hazard insurance or other costs being collected by the credit union to pay the borrowers’ expenses.

Furthermore, this form, if applicable, need only be supplied to the borrower(s) at the time of closing, or, if an escrow account is established after closing, then within 45 days after the escrow account is established.

G. Home Equity Disclosure:

This is not a new requirement and most credit unions are already providing this initial home equity disclosure at the time of application. While this disclosure only applies to home equity loans, it must be provided whether the new mortgage will be a first or second mortgage on the members’ real estate.

If your credit union is not currently supplying this disclosure to your members who apply for a home equity mortgage, please consult your attorney, as this document must be custom drafted for your particular home equity program.

This form must be supplied to any home equity applicant when an initial inquiry is made as to the credit union’s program, whether or not the individual actually completes an application. It must also be supplied to anyone who merely inquires as to the credit union’s home equity program, even if that individual is not a credit union member and would not qualify for approval as a nonmember.

H. HUD-1 Settlement Statement:

The HUD-1 Settlement Statement must be supplied to the applicant(s) at the time of closing, and available upon request by the member(s) at least 24 hours prior to closing.

The settlement statement should be signed by each Borrower(s) and contain all of the closing costs the member(s) will pay as well as any additional costs being paid by the credit union or any other entity. Only one copy need be provided regardless of whether or not there is more than one borrower.

I. Annual Escrow Account Disclosure:

This form should be provided to any borrower who has an established escrow account for the mortgage at the credit union. The form must be provided within thirty days prior to the end of the twelve month escrow computation period.

Only one copy need be provided, regardless of the number of borrowers. No fee can be charged to the member(s) for preparation of this form.

EDITOR’ S COMMENT:

The above required forms apply to home equity mortgages if the lien on the members’ real estate will result in a first or second mortgage. Many home equity mortgages are, in fact, first mortgages on the members’ property, and it is important for the credit union personnel to recognize that these disclosure requirements will apply to those first mortgages, with the exception of the Settlement Cost booklet, which is not required for a refinance, although this author suggests providing this valuable booklet to inform the applicants of prospective closing costs.

Although these regulations apply to most mortgages, there may be individual situations that are exceptions to the rule. If in doubt, the credit union should either supply the disclosure in question or consult with their own attorney for guidance and advice.