By Davida Farrar – MAY 14, 2020
We recently took action to make it easier for consumers with urgent financial needs due to the coronavirus pandemic to obtain access to mortgage credit more quickly. We issued an interpretive rule to clarify that, in certain circumstances, consumers may waive or modify certain waiting periods in mortgage transactions when facing a bona fide (good faith) personal financial emergency due to the coronavirus pandemic. This could help you to more quickly close on some mortgage loans. The rule clarifies:
- Waived waiting periods. You may be able to waive certain waiting periods that are generally required between the time you receive important disclosures about the mortgage loan you are considering and before closing on the mortgage.
- Waiver of right to rescind. You may waive your right to rescind—or right to cancel the loan—for certain types of non-purchase transactions, like refinances, home equity loans and reverse mortgages. This is generally a three-business day period.
This rule is intended to help consumers who have a need to obtain funds due to the COVID-19 pandemic prior to the end of an applicable waiting period. While we expect this to be a limited number of consumers—those seeking cash-out refinancing who can demonstrate an acute, near-term financial need during this challenging time—we wanted to make sure to share information about what it means to waive these waiting periods. Additionally, here are some tips and cautions for anyone thinking about using home equity to cover financial emergencies during this time.
For closed end mortgage loans, including a refinance or a home equity loan, the lender generally has to provide you with two important disclosures a certain number of days before you close on the loan. These time periods are known as “waiting periods.”
When you apply for the loan, the lender has to give a Loan Estimate, which describes important information about your loan offer. The lender has to give you the Loan Estimate within three business days of the lender’s receipt of loan application and at least seven business days before you close on the mortgage loan.
If you decide to proceed with the loan, the lender has to give you a Closing Disclosure, which provides final details on the loan you have selected. The lender must give you the Closing Disclosure at least three business days before you close.
What it means to waive a disclosure waiting period
These waiting periods can be very helpful in giving you time to make sure the loan terms are right for you and seek the advice of family members, friends, or professionals like housing counselors or lawyers. These waiting periods collectively:
- Give you time to make sure you understand your loan offer
- Give you time to compare offers to find the best deal
- Let you compare your final terms and costs to those estimated in your offer
- Give you time to ask your lender questions before you close.
The Bureau’s new rule clarifies that you may be able to waive a waiting period due to a bona fide personal financial emergency related to the pandemic, if the emergency requires you to receive the funds more quickly than the waiting period would allow. To do so, you must:
- Give the lender your own brief written statement—pre-printed forms are not allowed—describing the emergency which identifies a financial need that is due to the COVID-19 pandemic and clearly stating that you are waiving or modifying the waiting period.
- Sign and date the statement yourself, along with anyone else who is primarily obligated on the loan.
Whether or not you waive a waiting period, make sure you understand and can afford your loan terms and you are comfortable committing to the loan. Read here for more tips on getting ready to close on your mortgage .
What it means to waive your right to rescind
The right of rescission is the right to cancel certain types of mortgage transactions. You have a right of rescission for most non-purchase money mortgages, or mortgages that are not being used to buy a home. This includes refinances, home equity loans, and reverse mortgages. The right generally gives you three business days to cancel the mortgage agreement. If you waive your right to rescind, you waive the right you would have otherwise had to cancel the transaction for any reason or no reason at all—unless there is proof of fraud.
The Bureau’s new rule clarifies that you may be able to waive your right of rescission due to a bona fide personal financial emergency related to the pandemic. To do so, you must:
- Give the lender your own brief written statement—pre-printed forms are not allowed—describing the emergency which identifies a financial need that is due to the COVID-19 pandemic and clearly stating that you are waiving your right to rescind.
- Sign and date the statement yourself, along with anyone else who shares in the ownership of the home.
Before you tap your home equity, evaluate all your options
If you are considering refinancing your mortgage or taking out a home equity loan to deal with increased expenses, a loss of income, or for any other reason, it’s important to look at all of your options. While using home equity may be a good option for some consumers, it may put others at increased financial risk down the road. If your finances don’t recover as quickly as expected or your home loses value and you have difficulty paying your loan, you could lose your home to foreclosure.
Where can I get additional help?
If you need help understanding your options, you can reach out to a professional to help you with your specific situation.
HUD-Approved Housing Counselors. The U.S. Department of Housing and Urban Development (HUD)-approved housing counselors can discuss options with you if you’re having trouble paying your mortgage loan or reverse mortgage loan. This may also include forbearance or a modified payment program.
Credit Counselors. Reputable credit counseling organizations are generally non-profit organizations that can advise you on your money and debts, and help you with a budget. Some may also help you negotiate with creditors. There are specific questions to ask to help you find a credit counseling organization to work with.
You are not alone, as many people are facing financial challenges during this time and may be considering different ways to access additional funds and financial support. We are providing consumers with tools and resources to protect their finances and financial well-being during this difficult time.