Failure to Provide Homeowner Counseling List

Issue/Inquiry

If the Bank does not send out the homeownership counseling disclosure on a loan, how does it correct this?

Response Summary

A bank must provide a list of homeownership counseling organizations to applicants within three business days of receiving an application, or to a homeowner within 45 days of the loan secured by a principal residence becoming delinquent. The failure to provide the list in a timely manner cannot be corrected after the fact, but the Bank should nevertheless provide the list so that the applicant or homeowner will be in possession of the information, which may help demonstrate the good faith of the Bank and mitigate a resulting penalty for the violation.

Response Detail

A list of homeownership counseling organizations must be provided when a residential mortgage loan is applied for, or when a loan secured by the principal residence of the borrower becomes delinquent.

Under the Real Estate Settlement Procedures Act (Regulation X), such a list must be provided to all applicants for consumer mortgage loans secured by a one-to-four family residential property no later than three business days after the lender receives an application or sufficient information to complete an application. Reverse mortgages and timeshare loans are exempted. 12 CFR 1024.20(a)(1),(c).

If the lender, mortgage broker, or dealer does not provide the list to the loan applicant in person, the lender must mail the list to the loan applicant or deliver it by other means. 12 CFR 1024.20(a)(4).

A lender is not required to provide the list of homeownership counseling organizations if, before the end of the three-business-day period, the lender denies the application or the loan applicant withdraws the application. 12 CFR 1024.20(a)(5).

For existing loans secured by the principal residence of the homeowner, the Home Ownership Counseling Act requires the list of homeownership counseling organizations to be provided to the homeowner within 45 days of the loan becoming delinquent. (12 U.S.C. 1701x(c)(5)).

In either case, the violation occurs when the list is not provided within the prescribed time period. As such, the failure to provide the list in a timely manner cannot be corrected after the fact. The Bank should provide the list all the same, so that the applicant or homeowner will be in possession of the information. Doing so may demonstrate the good faith of the Bank and mitigate a penalty for the violation. The Bank should also document how it will avoid this error in the future.

This response is for informational purposes only and is not intended for legal guidance.

This entry was posted on Tuesday, October 13th, 2020 at 6:00 am.