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Snail Mail: A whale of a fail that will make your borrowers bail, your lending business flail, and leave you on the rail.

With the upcoming regulatory changes going into effect on August 1st, it is more important than ever for mortgage lenders and title companies to have an electronic disclosure system to handle the disclosure requirements promulgated by the new regulations. The primary reasons for electronic disclosures are the mandatory waiting periods that must occur after delivery of certain disclosures and additional time required for disclosures sent through the mail. For instance, lenders are not allowed to begin collecting documentation to verify income, assets, and other financial information from a borrower until after the borrower has received the written loan estimate. A lender is also required to provide the borrower with the closing disclosure at least three days prior to closing. If either disclosure is sent by U.S. mail, the borrower is not deemed to have received the disclosure until three days after it has been placed in the mail and the applicable waiting periods do not start until the borrower is deemed to have received the disclosure. Practically speaking, this means lenders and title companies that do not use electronic disclosures will not be able to begin collecting required documentation until four days after taking an application by phone or online. Likewise, such lenders will need to have their closing packages prepared at least seven days prior to closing.

Lenders commonly provide closing packages to their chosen title company, and expect the title company to prepare the closing disclosure and send it to the borrower. Title companies that are not set up for electronic disclosures, will require that lenders provide closing packages at least 7 days prior to closing (and even then will have to send out the closing disclosure within 24 hours). Clearly, if a lender has the choice between a title company that needs its closing package 7 days before closing and one that only needs it 4 days before closing, the lender will go with the latter. Title companies without the ability to disclose electronically will be at a significant disadvantage.

The enactment of these regulations during time when most experts predict a fairly long and drawn out environment of increasing interest rates is even more problematic. If you are a lender that uses the mail for your disclosures, you will have to inform your borrowers that you are not allowed to collect their financial documents until at least the fourth day after you have spoken with them or accepted their online application. You will also have to inform them that they will not be able to close until at least a week after the loan has been fully underwritten and is deemed clear to close. That is a three day delay on the front end and a three day delay on the back end of the transaction, not including any re-disclosures that may become necessary during the process. Not only does this put a lender behind when it comes to competing with lenders that promise faster results, the rising interest rate environment will force such lenders to obtain longer lock periods which may make it difficult to compete based on interest rate. As a result, the implementation of an electronic disclosure system, while seemingly insignificant in the grand scheme of all the changes required by the August 1st deadline, may be one of the most important things you can do.