Questions and Answers

On a mortgage loan that requires “early” disclosures (i.e., good faith estimates of TILA disclosures and settlement costs), we’re required to provide those disclosures within three business days of receiving the application. What if we decide to deny credit before that time expires? Are we still required to provide the disclosures?

No. Both Regulation Z (TILA) and RESPA’s Regulation X (24 CFR 3500) excuse you from the disclosure obligation if you decide to deny credit within the three-business-day time frame.

Here’s what the Regulation Z Commentary says: 

The creditor may determine within the 3-day period that the application will not or cannot be approved on the terms requested, as, for example, when a consumer applies for a type or amount of credit that the creditor does not offer, or the consumer's application cannot be approved for some other reason. In that case, the creditor need not make the disclosures under this section. If the creditor fails to provide early disclosures and the transaction is later consummated on the original terms, the creditor will be in violation of this provision. If, however, the consumer amends the application because of the creditor's unwillingness to approve it on its original terms, no violation occurs for not providing disclosures based on the original terms. But the amended application is a new application subject to this section. See Commentary to Section 19(a)(1)-4. 

RESPA’s Regulation X says the following: 

If the lender denies the application for a federally related mortgage loan before the end of the three-business-day period, the lender need not provide the denied borrower with a good faith estimate. See 24 CFR 3500.7(a)(1).

And with respect to the special information booklet:

However, if the lender denies the borrower's application for credit before the end of the three-business-day period, then the lender need not provide the booklet to the borrower. See 24 CFR 3500.6(a)(1).

(Posted: 12/14/2007)