Posted by ibnotary on 5/11/13 10:32am
Msg #469658

Question about Per Diem Interest Disclosure

Hello, I'm still quite new at this . . .

I have a question about the Per Diem Interest Disclosure. Yes, I know I don't need to understand and explain it to the signers, but this form perplexes me and I'd simply like to understand it better.

I understand that the whole issue is that if the loan is recorded on a Friday and funding doesn't occur until after the weekend, then there is an interest impact for those extra days.

What I don't understand is the option that says "Please arrange for the disbursement of the loan proceeds on a day immediately following a business day." Can someone help clarify how this option helps? It seems to me that if the loan is recorded on Friday and they select this option, then it won't be able to fund until Tuesday (the day after a business day), which will delay it further?

Thanks in advance!

Reply by Clem/CA on 5/11/13 10:57am
Msg #469660

If they choose that option the loan can't record on Fri, unless it also funds on the same day.

Reply by JJNotary/CA on 5/11/13 12:17pm
Msg #469664

This form bothers me also. I just do not see how the average person can make this decision w/o more information being given to them. Many of these people only see this form once or twice in their lifetime, this is not terminology they see every day or even every week. I have watched couple struggle over this one - not knowing how bad it is to choice the wrong one - and have to wait while I try and get someone one the phone for them at 9 o'clock at night.

I guess, I wish it came with a better explanation of what their choices mean. I watched a couple, with a doctorate in Mathematics no less, struggle with the right choice. While they understood one choice would cost money and one choice would delay funding - they were unclear how much it would affect their loan.

Reply by JanetK_CA on 5/11/13 12:35pm
Msg #469665

That form is one of my biggest pet peeves, and I've posted about this before. As I understand it, it addresses a California law that says a borrower can't be required to pay more than one day of overlapping interest on two loans when they're refinancing (i.e. the old loan and the new one). The assumption is that it will require two days to fund, record and disburse, so the too-clever-by-half attorneys who wrote most of those forms thought it would be a good idea to specify that the disbursement date (the last step) take place on a "day following a business day", if a borrower didn't want to pay any extra days of interest on either loan. So if funding would normally fall on Friday and disbursement on the following Monday, a borrower can request the funding be delayed until Monday, so that they're not paying interest on both loans over a weekend (usually the first option).

To answer your question, though, there ARE a very few situations where it might be to someone's advantage to go ahead and pay the extra days worth of interest on both loans over a weekend (usually the 2nd option). One example might be if they have a rate lock that is expiring. Another could be for FHA loans where they don't prorate the last month of interest. So if waiting one more day puts them into the next month, they end up paying another whole month of interest. A few days of overlap would likely be much less costly than a whole other month's worth of interest!

The frustrating part of this is for counties that have same-day electronic recording. (My county has had that for a number of years now, but I believe the number of counties around the state - and the country - with that capability is rapidly growing.) That means that title/escrow can do it all in the same day, so no overlap. It also means that on some days (Mondays and days following a holiday), we find ourselves in a catch 22 situation where neither option is accurate, depending on how the version of that form is worded.

To further add to the frustration, the HUD is calculated based on an assumption about when disbursement will take place, but many settlement statements don't state a disbursement date or even what period of time is covered for prorated interest (and we shouldn't have to be calculating that, IMO). So with that document, on certain days we can find ourselves doing a tap dance, trying to avoid UPL, or leaving it to the borrowers to guess which box to check. Or they end up calling their LO, who may not have any idea what they're talking about. The other option is to leave it blank, but I've seen a number of lender instructions stating that a box must be checked. (I always just love those...NOT!)

I'll give props to Provident for one thing (although I don't think they're alone): on their version of this form, their first option that says "on a day following a business day", they add "unless it can be done the same day" (or wording similar to that). I wish all the forms included that option!

Reply by JAM/CA on 5/11/13 1:24pm
Msg #469668

Excellent explanation Janet. This is why I like it when the loan signs on a Monday in the
middle of the month. I basically can tell them when their loan will probably fund, if there
is no additional requirements to close the loan. Grant Deed, Subordination, etc.

By giving them a simple explanation of the per diem according to when their loan will fund.
What I dislike strongly, is when the blanks are not filled in for them to make a choice.

Reply by JanetK_CA on 5/11/13 2:57pm
Msg #469676

Another perspective...

I soooo agree about the blanks not being filled in. It makes a tough decision more difficult when not all the information is provided.

I received a pm from someone (who I guess didn't want to post here) saying (if I understand it correctly), that the two days may actually be because, after disbursement, it takes another day for the Federal Reserve to process the interbank wire transfer so that funds are received by the old lender and the loan is considered paid off. I never thought about how that part of the process works. Maybe someone else who has been involved in that part of the process may be able to confirm that. I would appreciate that so that I'm not giving out bad info.

I do wish these forms provided a much clearer explanation for borrowers!

Reply by Linda_H/FL on 5/11/13 3:16pm
Msg #469677

My understanding of the process based on work

experience and personal experience..

Rescission period ends at midnight - beginning next business day, title is authorized to disburse, but lender has to wire money to them - that doesn't usually come in til afternoon (since lender surely won't wire money in advance). So title's wire transfers based on that money in probably don't go out til day AFTER first business day after end of rescission period. So, midnight Tuesday, lender wires Wednesday afternoon, title won't see money til Thursday morning, payoff done Thursday afternoon but company receiving won't see til Friday (2:00 seems to be the magic number for wires in and out, or so I was told).

JME

Reply by Bear900/CA on 5/13/13 2:34am
Msg #469737

There are several issues actually being discussed here.

I will address the Per Diem Authorization form. This form is addresses the amount of interest that can be collected on the new loan prior to Disbursement of the loan.

We all know there are three things that take place, and usually in this order in CA:
1) Recording of the instrument
2) Funding of the loan, and
3) Disbursement

Disbursement can be considered complete only after the first two events and under the following conditions:
1) Payoff has been sent to prior lender or any other 3rd party (means funds are in escrow)
2) Disbursement has been made to the customer, OR
3) Funds are Available in Escrow for disbursement to the customer

That eliminates a customer trying to delay the start of interest by delaying picking up funds if they choose to do so in person. That is pretty much common sense.

CA Civil Code 2948.5 has been revised as of 2007 to prevent the predatory practice by lenders of collecting one day of interest prior to recording and/or funding, rather then disbursement, since theoretically the prior two can happen the same day in CA. I have had to push that a few times in the past.

The revision stated lenders can still collect one day interest but now only one day prior to disbursement as defined above. The code since 2003 always allowed for only one day.

That takes us to the Monday/Holiday or day after a Business day routine which I think you can pretty much cypher now. Assuming recording and funding is completed by Friday, and disbursement could happen as soon as Monday, the lender could collect three days interest instead of one. If the customer wants the loan to disburse the day after a business day, say on Tuesday, the lender can only collect one day prior interest.

Considering that the loan disbursement has to be past the recording and funding stage, the rate lock period is a non-issue at this point.

Is it legal to discuss this? If you use the logic that we disclose the per diem amount on the HUD and such things as 1st payment due date, APR, etc., it may fall in that category, I don’t know. Best to play it safe if you are not sure. You can always keep a printed page of the Code handy, let them read it without discussing and they can decide from there. You are not interpreting you are only providing reading material. Just make sure it is the current code, revised 2007.

http://www.leginfo.ca.gov/cgi-bin/displaycode?section=civ&group=02001-03000&file=2947-2955.5

If you feel this would put you in a position of interpreting the law, then don’t.

It boils down to a hidden closing cost that the customer is unaware of. That is the additional days of interest that will be collected by the new lender. Should the customer be made aware of that?
Of course. Most LO’s however never see the disclosure so would have a hard time explaining it.

The closing agent at Escrow should however be aware of it. It may be best to point them to the EO rather than the LO in my opinion.

Best!

Reply by garland/CA on 5/13/13 11:10am
Msg #469753

Great discussion!

This form is highly confusing and often borrowers have to make a selection so it does require some sort of general "explanation".
For purchases it makes sense that some loans will fund Friday and not record until Monday, so borrowers are paying interest over the week-end before they get the keys to the house.
For refinances I also found it more difficult to understand. Generally I say that depending on the funding day they could end up paying an extra day or two of interest, therefore they are being allowed the option of choosing a funding day. One option says there must be one business day prior to funding. In some cases this MAY delay funding by a day or two. The other allows the loan to fund without one business day prior which can prevent a delay but there may be an extra day or two of interest. If they are close to their rate expiring they may want to choose the option that wouldn't delay funding.