What Is a Mortgage Loan Disclosure Statement?

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There are laws in place to provide consumer protection when seeking a mortgage.
There are laws in place to provide consumer protection when seeking a mortgage.

A Mortgage Loan Disclosure Statement is a mortgage loan good-faith estimate required by the state of California. It must be given to the prospective purchaser of a property by his real estate broker within three business days after receipt of a completed written loan application or before the borrower becomes obligated on the note, whichever is earlier. The broker must keep the statement on file for three years.

  1. Background

    • Federal law requires that an applicant for a mortgage loan be provided with a good faith estimate, commonly referred to as the HUD-1 statement, that discloses to the prospective borrower relevant information about the loan. The California Business and Professions Code Section 10240(c) requires that the Mortgage Loan Disclosure Statement, or MLDS, be furnished to the applicant for a mortgage loan in addition to HUD-1. The MLDS restates information from the HUD-1 and includes information not included on the HUD-1.

    Required Financial Disclosures

    • The MLDS requires the borrower's name, address of the property and the real estate broker's information. In addition, the MLDS requires the disclosure of costs and expenses associated with the loan. These costs and expenses include, but aren't limited to: broker commission, appraisal fees, loan discount fees (points), credit reporting fee and fire insurance fee. The costs and expenses are presented in a tabular form. The statement also requires disclosure from the broker of any financial benefits the broker might receive. It provides general information about the loan, including the proposed interest rate, whether it is a fixed or variable rate, the proposed monthly loan payment, the total number of installments and the loan term.

    Loan Information and Liens

    • The MLDS summarizes the information and includes any required down payment and required payoffs to creditors and lien holders. It then shows the total cash that will be received or paid at closing by the borrower. It contains a list of all of the lien holders to which the borrower will be responsible after the loan closes. It then warns the borrower that if the list is inaccurate and the loan is denied because of an unlisted lien, the borrower may be responsible for commissions costs, fees and expenses associated with the loan application.

    Balloon Payments and Sources of Funds

    • The next section requires disclosure of any balloon payment stipulations in the loan and warns the borrower of the implications of a balloon payment, including the potential of fees and expenses to arrange a new loan and the possibility of losing the property through foreclosure if the balloon payment cannot be paid or refinanced. Finally, the broker must disclose whether the loan is being made in whole or in part from broker controlled funds and further discloses to the prospective borrower that this is not a loan commitment. The broker and borrower sign and date the form.

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