We extended a loan to a borrower who purchased a home with the intention of making it his principal residence. He is unmarried and decided at the time of closing to add his girlfriend to the deed. She signed the mortgage but was not included on the Closing Disclosure (CD). Our loan documentation system included a signature line only for the borrower. Is this correct? Also, if a borrower refinances a loan secured by their primary residence without their spouse on the loan, would the spouse be required to sign the CD? This is assuming the spouse is listed on the deed and would be given a notice of the right of rescission and be required to sign a waiver of homestead rights.

You were not required to provide a copy of the CD to the customer’s girlfriend or obtain her signature on the CD, since she is not entitled to rescind the purchase loan and therefore is not a “consumer” who must receive a copy of the CD.

Regulation Z requires that a CD be provided to a “consumer,” defined as a person to whom credit is offered or extended. Here, no credit was offered or extended to the customer’s girlfriend.

In addition, Regulation Z requires that a CD be provided to each “consumer” who has a right to rescind the transaction. For the purposes of the right of rescission, the term “consumer” also includes a person whose principal dwelling is or will be security for a loan and who has an ownership interest in that dwelling, even if they are not a borrower on the loan. However, this right of rescission does not apply to a “residential mortgage transaction” (defined as any credit transaction to construct or acquire a principal dwelling), such as a purchase loan. In this case, even though the girlfriend’s name is on the deed and she is using the home secured by the purchase loan as her principal dwelling, she is not entitled to rescind the transaction, since it is a residential mortgage transaction. Consequently, she is not a “consumer” in this context, either, and your bank was not required to provide her with a CD.

Refinancings

Likewise, if a married borrower refinances a loan secured by their primary residence, and their spouse is not a borrower but is on the deed to the property, the spouse is not be entitled to receive a CD — unless new money is advanced, giving rise to the right of both the borrower and their spouse to rescind the transaction.

Under Regulation Z, the right of rescission does not apply to a refinancing by the original creditor for a closed-end loan already secured by the borrower’s principal dwelling unless new money is advanced. If new money is advanced, the right of rescission applies to any amount exceeding the original loan’s unpaid principal balance, any unpaid finance charges on the existing debt, and any amount solely related to the costs of refinancing (such as attorney’s fees, title examination fees, and insurance fees).

Accordingly, if new money is advanced, a titled spouse would have the right to rescind the refinancing and thus be considered a consumer for the purposes of the CD rules. In such case, you would be required to provide the spouse with a copy of the CD. However, the spouse’s signature would not be required on the CD in any event, since signatures on CDs are optional under Regulation Z.

Notwithstanding the above, note that some secondary market investors may require lenders to obtain a non-borrowing spouse’s signature on the CD. While Fannie Mae and Freddie Mac recommend obtaining only the borrowing spouse’s signature on the CD as a “best practice,” some private secondary market investors still may require a non-borrowing spouse’s signature on the CD.

For resources related to our guidance, please see:

Regulation Z, 12 CFR 1026.2(a)(11) (“Consumer means a cardholder or natural person to whom consumer credit is offered or extended. However, for purposes of rescission under §§ 1026.15 and 1026.23, the term also includes a natural person in whose principal dwelling a security interest is or will be retained or acquired, if that person's ownership interest in the dwelling is or will be subject to the security interest.”)

Regulation Z, Official Interpretations, Paragraph 38(a)(4), Comment 4 (“Section 1026.38(a)(4)(i) requires disclosure of the consumer’s name and mailing address, labeled ‘Borrower.’ For purposes of § 1026.38(a)(4)(i), the term ‘consumer’ is limited to persons to whom the credit is offered or extended.”)

Regulation Z, 12 CFR 1026.17(d) (“If there is more than one consumer, the disclosures may be made to any consumer who is primarily liable on the obligation. If the transaction is rescindable under § 1026.23, however, the disclosures shall be made to each consumer who has the right to rescind.”)

Regulation Z, 12 CFR 1026.23(a)(1) (“In a credit transaction in which a security interest is or will be retained or acquired in a consumer’s principal dwelling, each consumer whose ownership interest is or will be subject to the security interest shall have the right to rescind the transaction, except for transactions described in paragraph (f) of this section.”)

Regulation Z, 12 CFR 1026.23(f)(1) (“The right to rescind does not apply to the following: (1) A residential mortgage transaction.”)

Regulation Z, Official Interpretations, Paragraph 23(a)(1), Comment 2 (“To be a consumer within the meaning of § 1026.2, that person must at least have an ownership interest in the dwelling that is encumbered by the creditor’s security interest, although that person need not be a signatory to the credit agreement. For example, if only one spouse signs a credit contract, the other spouse is a consumer if the ownership interest of that spouse is subject to the security interest.”)

Regulation Z, 12 CFR 1026.23(f)(2) (“The right to rescind does not apply to. . . . A refinancing or consolidation by the same creditor of an extension of credit already secured by the consumer’s principal dwelling. The right of rescission shall apply, however, to the extent the new amount financed exceeds the unpaid principal balance, any earned unpaid finance charge on the existing debt, and amounts attributed solely to the costs of the refinancing or consolidation.”)

Regulation Z, Official Interpretations, 12 CFR 1026, Paragraph 23(f)(2), Comment 4 (“If the refinancing involves a new advance of money, the amount of the new advance is rescindable. . . . For purposes of the right of rescission, a new advance does not include amounts attributed solely to the costs of the refinancing. These amounts would include § 1026.4(c)(7) charges (such as attorneys fees and title examination and insurance fees, if bona fide and reasonable in amount), as well as insurance premiums and other charges that are not finance charges. (Finance charges on the new transaction — points, for example — would not be considered in determining whether there is a new advance of money in a refinancing since finance charges are not part of the amount financed.)”)

Regulation Z, 12 CFR 1026.38(s)(1), Content of Closing Disclosure (“At the creditor’s option, under the heading ‘Confirm Receipt,’ a line for the signatures of the consumers in the transaction. . . .”)

CFPB Guide to the Loan Estimate and Closing Disclosure Forms, page 95 (“The creditor, at its option, may include a line for the signatures of the consumers to Confirm Receipt. . . .”)

Fannie Mae Selling Guide (February 5, 2020), page 80 (Individual Mortgage Loan Files (“[T]he final version of the Closing Disclosure does not have to be signed by the borrower and seller although lenders may obtain signatures, which Fannie Mae supports as a best practice . . .”)

Freddie Mac, Bulletin 2015-4 (April 9, 2015), page 2 (“Freddie Mac will not require signed Settlement/Closing Disclosure Statements or additional forms on and after the TRID Rule Effective Date. However, Seller/Servicers may wish to consider collecting (or continuing to collect) signatures and/or forms given their potential evidentiary value, consistent with current widespread industry practices.”)