The
three day right of rescission. This regulation was put into place (supposedly)
to give borrowers the opportunity to let their attorney or trusted confidants
to review the signed documents before funding the loan to ensure it’s in the borrowers’
best interest. First of all the regulation also requires the borrower to sign a
disclosure confirming they are aware of this regulation and any time you add a
required disclosure to a closing package, you are creating another opportunity for
something to go wrong. Not only can just having to sign the form create
problems,(i.e. when a borrower mistakenly dates is incorrectly it could cause
the entire package to have to be resigned if not caught by escrow in time.) but
the amount of time that is spent while everyone waits for your loan to fund is
wasteful to say the least.
First,
why is it only required on refinance and not purchase? Wouldn't it make more
sense for someone to have time to look over documents committing them to a home
they have never lived in before as opposed to documents committing them to a
more favorable payment on a home they have lived in for years possibly their
entire lives? Plain and simple, there is a HUD at closing that compares the
closing disclosures with the opening disclosures you received at the start and
if the fees are more than 10% higher, the loan cannot fund. Not to mention the
borrower does not have to sign the disclosures if they do not like them. No
matter what! So what is really the point of this?
Perhaps
some politician wanted to get attention, perhaps a lawyer needed to get
recognition? Possible, however I have a feeling it’s much bigger than that.
Since I have watched this right of rescission cost consumers thousands of
dollars. Since I have never seen a single client, out of over 9,600 loans that
closed around me, utilize the right of rescission. I have to suspect there is
another reason for this costly time consuming disclosure and requirement.
It's the Banks! Lending money to homeowners for primary
residence on 1-4 unit buildings that conform to Fannie, Freddie or Genie Mae,
is the safest way to invest your money. Coincidentally the only loans that
require a 3 day right of rescission are loans that are exactly like the ones I
just described. Interesting. Perhaps the real reason is the investors who
invest through these types of loans are looking for one more loop hole to get
out of delivering a loan on time. I truly feel this is the only logical
explanation, I have seen nothing but pain endured by both the originator, and
the borrower and never once seen or heard of any good coming from it. Not to worry, I will tell you what you should know in order to protect yourself.
Delivery of the TIL disclosures and the notice of right of rescission happens at closing. Once you sign the loan documents with the disclosure, (provided you did not accidentally date the form incorrectly and make a correction) the
three-business-day period must follow both the disclosure and the
rescission notices, as well as the signing of the loan documents, called consummation of the loan, and this begins the next business day as day 1 of 3.
Midnight is considered the
beginning of the first rescission day. Therefor making you wait an additional day on top of the three days. Consider a borrower who signs
loan documents and signed all material disclosures on Monday, June 1 at 8:00AM. The
actual timeline would go like this:
Monday, June 1 - Day of disclosure/signing. Rescission begins running on the day after this day.
Tuesday, June 2 - First day of three-day rescission period.
Wednesday, June 3 - Second day of the three-day rescission period.
Thursday, June 4 -Third day of the three-day rescission period. The loan cannot close until all of
Thursday has passed, and it is midnight.
Friday, June 5 – Loan can now fund, however even if the loan funds in the morning, the lender being paid off will not receive the funds until the next business day, Monday. Now you will have to pay interest to the new lender starting on Friday. You will also pay interest to the existing lender until Monday. Paying double interest for two days.
Sign your loan documents on Wed - Sunday.
Wednesday, June 3 - Second day of the three-day rescission period.
Thursday, June 4 -Third day of the three-day rescission period. The loan cannot close until all of
Thursday has passed, and it is midnight.
Friday, June 5 – Loan can now fund, however even if the loan funds in the morning, the lender being paid off will not receive the funds until the next business day, Monday. Now you will have to pay interest to the new lender starting on Friday. You will also pay interest to the existing lender until Monday. Paying double interest for two days.
Sign your loan documents on Wed - Sunday.
