Federal law requires that an applicant for a mortgage loan be provided with a good faith estimate, commonly referred to as a HUD-1. Mortgage loan good-faith estimates disclose to prospective borrowers relevant information about their hoped-for loans. The California Business and Professions Code Section 10240(c) requires that the state's MLDS be furnished to mortgage applicants in addition to a HUD-1. The MLDS restates some information from the HUD-1 but also includes information not included on the federal form.
A Mortgage Loan Disclosure Statement is a mortgage loan good-faith estimate required by the state of California. The Golden State's mortgage loan disclosure statement must be given to hopeful mortgage borrowers within three business days after receipt of completed written loan application. California mortgage borrowers may also receive their state-specific mortgage loan disclosure statements before they sign for their loans, whichever is earlier. Mortgage lenders must keep mortgage loan disclosure statements on file for three years.
Loan Disclosure Statements
Required Financial Disclosures
The MLDS requires the borrower’s name, address of the property and the real estate broker’s information. Disclosure of costs and expenses associated with the loan are also part of the MLDS. Mortgage costs and expenses include broker commission, appraisal fees and loan discount fees or points. MLDS costs and expenses are presented in tabular form and mortgage brokers must also disclose any financial benefits being received. An MLDS also includes the loan's proposed interest rate, whether it's fixed or variable, the monthly payment, the total number of payments 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. The total cash that will be received or paid at closing by the borrower is also listed on the MLDS. Plus, an MLDS lists all lien holders to which the borrower will be responsible after loan closing. Warning on the MLDS note that borrowers may be responsible for commissions, fees and expenses associated with the loan in cases of denial due to unlisted liens.
Balloon Payments and Fund Sources
MLDS also requires disclosure of loan balloon payment stipulations and warns of a balloon payment's implications. Possible mortgage balloon payment implications include expenses to arrange a new loan and foreclosure if balloon payments cannot be paid or refinanced. The MLDS also states that brokers must disclose whether loans are being made in whole or in part from broker-controlled funds. The form additionally discloses to prospective borrowers that it is not a loan commitment. Mortgage brokers and their borrowers must also sign and date the MLDS.
- California Department of Real Estate: Mortgage Loan Disclosure Statement
- California Department of Real Estate: Real Estate Law and Subdivided Lands Law
- U.S. Department of Housing and Urban Development: Settlement Statement (HUD-1)
- Consumer Financial Protection Bureau: What is a Good Faith Estimate? What is a GFE?
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