Section 4 Unit 2 Lesson 4 Right of Rescission Flashcards
Right of Rescision
In addition to the advertising rules, lenders must also provide consumers with a disclosure statement within 3 days of receiving their loan application. This disclosure must include the actual annual interest rate on the loan, the APR and any finance charges that apply.
For borrowers who are refinancing or obtaining a new loan on their current residence, the disclosure statement must also include the right to back out of the loan up until midnight of the third business day after closing on the loan (called the right of rescission”)
No questions asked. Under regulation Z, business days include Saturdays but not Sundays or federal holidays.
When rights of Rescission Apply
Loans that are being used to purchase a primary residence are exempt from the right of rescission.
In other words, it applies to the refinancing of mortgage, HELOC, and other home equity loans, but not for purchases of new homes.
Rescission rights don’t extend to
Refinancing a loan with the same mortgage lender, unless new amount is higher that the unpaid balance of the old loan
Commercial loans
Construction loands
Transaction where lender is a state agency
Loans on vacation home or second homes
MLO Compensation
Regulation Z dictates rules about hwo MLOs may be compensated for originating loans. No dual compensation.
Compensation may only be received from one party.
However, a mortgage company can be paid by one consumer, and then compensate or provide a commission to the individual MLO, without violating the dual compensation rule, as long as the commission is not based on the loan originated.
Regulation Z probhits
the MLOs from being compensated based on the term of the loan.
MLO
The only loan characteristic that an MLO may be compensated for is the loan amount.
Yield Spread Premiums
YSP is a fee or commission, a lenders pays to the mortgage broker in exchange for a higher interest rates or above market rate.
The Dodd- Frank Act later made YSP illegal.
