Federal Refinance Rules

Application Disclosures

When you apply for a mortgage refinance, there are three major disclosures that you will receive within three days of applying. These are the Good Faith Estimate, Early Truth in Lending Disclosures and the Servicing Disclosure. The estimate will contain an itemized list of the fees the bank will charge, and the truth in lending document will show you the estimated APR the bank is willing to offer you on your refinance. These documents can be used to shop different banks to find the best loan for you. The Servicing Disclosure will tell you whether or not the bank intends to sell your mortgage on the secondary market.

When you apply for a mortgage refinance, the Home Mortgage Disclosure Act requires that the bank report information about your application to the government. This is so the government can ensure that the bank is not discriminating. Your name is never reported, so the information is not connected to you directly. For this reason, the loan representative will ask you to provide him with information about your race, ethnicity and sex. The law does not require you to answer, but you are encouraged to provide answers to the questions. If you do not, and your application was conducted in person, the representative must answer the questions on your behalf based on his visual observation.

Federal rules also require that there be certain waiting periods associated with your refinance. After you receive your disclosures at application, the bank must not close the loan for at least seven business days. The regulation is meant to provide you with plenty of time to review the terms of the loan before committing to it. In addition, if your annual percentage rate increases by more than one eighth percent, the bank must give you a new estimated truth in lending disclosure and provide you with an additional three days to review the disclosure before closing the loan. If you have a genuine financial emergency that requires that the refinance close sooner, you may request in writing that the requirement be waived.

Any time you refinance your home, the bank is required to determine whether or not your property falls within a FEMA designated flood hazard area. If it is in a flood zone, the likelihood is that you would have found out about when you took out your original mortgage. Regardless of your previous knowledge, the bank is required to send you written notification of the flood status of your property during your loan process. Such notification means that you are required by law to carry flood insurance on your home for the life of the mortgage. If your home is not in a flood zone, you will receive no notification and your refinance will continue normally.

Regulation Z gives consumers the right of rescission when refinancing their home. This means that after you sign the paperwork to close your loan, you have three business days to reconsider. The bank will not disburse any funds until the rescission period is over, just in case you decide to exercise this right. If after signing your loan documents you decide that your current mortgage is better for your situation, let the bank know that you wish to rescind your loan under Regulation Z. The lending institution is required to stop the lending process and within 20 days it must refund any fees that you paid out of pocket for the cost of refinancing.