MDIA 3-7-3 Rule

MDIA – How can this acronym affect your real estate closing?

MDIA, or the Mortgage Disclosure Improvement Act,[1] was enacted by the US Congress in 2008 to protect consumers from paying excessive fees while shopping for credit and to provide consumers with disclosures that will help them make the right choice for their credit needs. In short, MDIA imposes early disclosure requirements and specific waiting periods on a loan that is secured by a consumer’s dwelling, which includes a consumer’s second home or vacation home.

In a purchase or refinance (includes home equity loans) transaction, the lender will have to abide by the specific waiting periods in MDIA, which is commonly known as the 3-7-3 Rule:

3: A lender must deliver or mail early disclosures to the consumer no later than three business days after the lender receives the consumer’s application and before the consumer pays any fee other than the fee for obtaining a credit report. These early disclosures will provide the consumer with important information about the credit transaction, such as the annual percentage rate (APR) and estimated closing costs.

7: A lender must deliver or mail the early disclosures no later than the seventh business day before the loan is closed. In other words, a lender is prohibited from closing the loan until the seventh business day after it delivers the initial disclosures to the consumer. It is important to note that the seven day countdown begins when the lender either delivers or mails the initial disclosures to the consumer, not when the consumer actually receives them.

3: If the APR disclosed on the initial disclosures changes by 0.125%, the lender must correct its disclosures and the consumer must receive a copy of the corrected disclosures no later than three business days prior to closing.

So, how can this acronym affect your real estate closing? As you can see, assuming all goes well, a consumer will have to wait at least seven business days before it can refinance its mortgage, so be mindful of this waiting period when planning your refinance. Additionally, if you’re purchasing a home, it may be a good idea to provide for a longer closing period in the contract to prevent a potential breach in the event the lender is required to re-disclose (due to an APR change), which will require the parties to wait an additional three business days to finalize the purchase transaction.

Nonetheless, waiver is possible – a consumer may expedite closing by waiving the seven day or three day re-disclosure waiting period if the loan is needed to meet a bona fide personal financial emergency. The lender will determine on a case-by-case basis whether the consumer’s situation constitutes a financial emergency. But, be wary, waivers are discouraged and highly technical, so it may not be an easy process to obtain one.
[1] MDIA can be found in Regulation Z, 12 C.F.R. § 226.19 (2011). For the definition of business day, please refer to 12 C.F.R. § 226.2(a)(6).

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