Thought Leadership
Computing an APR with the new Mortgage Payment Disclosures
Had an interesting phone message from a colleague attending a Mortgage Bankers Conference yesterday. It went something like this:
“Just got out of a really interesting session. A great deal of debate and discussion on being able to validate the TILA APR at mortgage closing with the new mortgage disclosures. Each of the panel members computed a different rate for the same loan. The animated discussion was about which one was right. There is great concern that at closing you have to gather documents from multiple parties and pull information together from these various documents. One mistake and you have a situation.”
Sometimes, it takes a while for certain chickens to come home to roost.
Back in the fall of 2010 when the interim rule about what, at Carleton, we call the “MDIA Payment Disclosures” proposal was published, it was clear that one of the deficiencies of the attempt to overhaul mortgage disclosures was that the contract itself did not display the actual payment schedule that other TILA disclosures were derived from.
In short, there isn’t the proper information on the contract disclosure to compute/validate the TILA APR.
Since our focus is on the calculations and disclosures, that fact was a glaring drawback in our view. We opined exactly this issue to the Federal Reserve Board of Governors, they actually promulgated the original interim rule, during the industry comment period.
At the time in exploring this issue with regulators at both the national and state level, we got pretty much the same response, “well, examiners have to look at the HUD-1 anyway, they can get the payment information from there”.
After 29 years in the Carleton Research Department, I can’t even tell you how many times I have worked with auditors, compliance officers, attorneys, and examiners who believed an APR value was incorrect only to realize the issue was with in accurate data entered into the APR check program they were using. This when all the payment information required was still in the Fedbox on the contract.
Now the expectation is to pull critical information from other documents? Have you ever noticed how many numbers reside on a completed HUD-1 form?
It just seems that the new disclosures have opened a huge door on the opportunity for inaccuracies ranging from simple lapses to egregious errors on the part of auditors who now have to play detective with an assortment of documents.
More information isn’t always better information.
*If you would like to view Carleton’s official comment letter to the FRB concerning the MDIA Mortgage Payment Disclosures, click on the link below: