Mortgage brokers and lenders, as well as consumers, are encouraged to read the Act carefully and fully understand the rights and responsibilities of applicants, mortgage brokers, and mortgage lenders under the Act and to seek advise from their legal counsel as needed.

The Act covers loan transactions, home improvement contracts which are secured by first liens, subordinate liens, or other liens, and land contracts on real property located in Michigan and used by the applicant or borrower as its principal dwelling, and which real property is designed for occupancy by 4 or fewer families. However, the statute does not cover the following loan transactions:

• Loans in which the loan proceeds are used to purchase a dwelling. These loans are sometimes referred to as "purchase money loans."
• Reverse mortgages.
• Open-end credit in which the lender reasonably expects the borrower to access multiple advances.

In essence, the Act covers first lien mortgage loans (other than those to acquire a dwelling), refinance transactions, subordinate lien mortgage transactions, home improvement contracts in which a first or subordinate lien is taken on real property (other that home equity lines of credit), and land contracts in refinance transactions.

A. Commercial loans are subject to the Act only to the extent a commercial loan transaction includes a lien on residential real property.

The Act must be read carefully. Some sections of the Act apply to a "person." A person is defined as any individual, corporation, partnership, governmental entity, or any other legal entity. Other sections of the Act apply to "lenders." The term lender, however, is not defined in the Act. Generally, a lender would include any "person" lending money for a mortgage loan as the term "mortgage loan" is defined in the Act.

The term "application" is not defined in the Act. It is the Commissioner's opinion, however, that consistent with Regulation B of the Board of Governors of the Federal Reserve implementing the Equal Credit Opportunity Act and the Regulation X of the Department of Housing and Urban Development implementing the Real Estate Settlement Procedures Act, documents or information become an application when a lender has sufficient information with which to make a credit decision regarding a specified parcel of real property.

The Act became effective on December 23, 2002.

It is the Commissioner's opinion that the Act applies only to applications for covered mortgage loans made on or after December 23, 2002.

Mortgage brokers that are not mortgage lenders are persons, as the term "person" is used in the Act. Consequently, the Act applies to mortgage brokers that are not mortgage lenders to the same extent it applies to persons. Further, it is the Commissioner's opinion that the Act is contemplated to apply to mortgage brokers that are not mortgage lenders to the same extent the Act applies to "lenders."

A lender may finance credit life, credit disability, or credit unemployment insurance as part of a mortgage loan transaction; however, the lender may not finance single premium coverage for these products in the mortgage loan.

The Borrowers Bill of Rights provides a written recitation required to be distributed by lenders to mortgage loan applicants as defined in the Act. The Bill of Rights, itself, does not confer any rights upon applicants. Rights that accrue to mortgage loan applicants arise from other laws.

One or more of the enumerated "rights" do not, in fact, apply to applicants for mortgage loans as the term is defined under the Act.

For example, Regulation Z of the Board of Governors of the Federal Reserve implementing the Truth in Lending Act, allows lenders to provide their good faith estimates before consummation, or not later than three business days after the lender receives the consumer's written application, whichever is earlier.

Additionally, the right to receive a copy of the HUD settlement costs booklet "Buying Your Home" applies to transactions in which the borrower is actually buying a home - a purchase money transaction. Loans, which are purchase money transactions, are not "mortgage loans" as defined in the Act, however. Consequently, borrowers engaged in loan transactions covered under the Act are not entitled to receive a copy of the HUD settlement costs booklet.

The Borrowers Bill of Rights, along with the Consumer Caution and Home Ownership Counseling Notice, must be distributed exactly as provided in the Act.

Lenders should consult their legal counsel to obtain information about this matter.

A. It is the opinion of the Commissioner, that taken in context, sections 6 and 7 of the Act apply to brokers of mortgage loans that are not otherwise lenders. However, brokers may wish to consult their legal counsel on this matter.

The Act does not specify a font style or type size. It is the Commissioner's opinion, however, that the disclosures be made clearly and conspicuously in writing and in a form the applicant may keep.

The statute does not excuse lenders from complying with the Act merely because another person provides the disclosures.

The Act provides no guidance on these points. It is the Commissioner's opinion, however, that lenders obtaining mortgage loan applications from brokers should provide the disclosures to the applicant via first class mail at the time the lender obtains sufficient information to make a credit decision with regard to a specified parcel of real property.

The Act does not contemplate these matters. It is the Commissioner's opinion, however, that lenders taking applications over the telephone should provide the disclosures at the earliest possible time following the receipt of an application. Additionally, it is the Commissioner's opinion that lenders taking mortgage loan application information via the lender's website should provide the disclosures in an electronic format not later than immediately following the receipt of a mortgage loan application.

The two disclosures may be combined into one document so long as the disclosures are clear and conspicuous, in writing, and in a form the applicant may keep.

The Act does not require lenders to obtain an acknowledgement of receipt of the disclosures from applicants. However, it is the Commissioner's opinion that lenders must be able to demonstrate that they have, in fact, provided the disclosures.

Text of the disclosures can be found in sections 6 and 7 of the Act, MCL 445.1636 and 1637, respectively. OFIR does not provide forms.

It is the opinion of the Commissioner that lenders are required to provide both the Notice and a listing of nearest available HUD-approved credit counselors.

The Act does not define the phrase "nearest available." The HUD toll-free telephone number, however, provides names of credit counseling agencies based on United States Postal Service Zip Codes. It is the Commissioner's opinion that lenders may use U. S. Postal Service Zip Codes to identify nearest available credit counseling agencies.

In addition to the telephone number provided in the Act, one may contact HUD at 1-800-569-4287 or at its website: www.hud.gov.

It is the Commissioner's Opinion that businesses that purchase mortgage loans on the secondary market are not liable for the violations of lenders from which the business acquires the mortgage loan.

OFIR will incorporate a review of compliance with the Act into its normal examination and investigation programs.

The Commissioner does not have authority to make preemption determinations with regard to this Act. Those with preemption concerns should consult their legal counsel.

A person is not liable for a violation of this Act if the person shows that the violation was an unintentional and bona fide error even though the person maintained procedures reasonably adopted to avoid the error. However, an error in legal judgment is not a bona fide error under the Act.

Additionally, a person is not liable for a violation under this Act if the person notifies the borrower and corrects the error within 60 days of the violation and prior to the institution of legal action by the Attorney General or a county Prosecuting Attorney.

Pursuant to authority in the Act, the Commissioner will do one of the following:

1. Refer the matter to the Attorney General or a county Prosecuting Attorney for legal action.
2. Initiate an administrative enforcement action pursuant to a licensing or chartering statute under which the person is otherwise regulated.
3. Forward a complaint to another appropriate regulatory authority such as the Office of the Comptroller of the Currency, the Office of Thrift Supervision, or the National Credit Union Administration.

The Act prohibits local units of government from regulating mortgage activities.

As required by the Act, the model programs will be available not later than December 31, 2003. Interested persons may wish to periodically check the OFIR website.