The Disclosure That Arrived After Signing
On Monday, October 6, a DRE-licensed broker at Marin Mortgage Group takes a full application for a $612,000 refinance of a single-family home in San Rafael. The broker collects a $1,200 "application and processing fee" by check at the appointment and deposits it in the company's general operating account. The lender issues a Loan Estimate on October 8 and a Closing Disclosure on October 30; the borrower signs November 3 and the loan funds November 4. The broker emails its Mortgage Loan Disclosure Statement on November 12, stating $7,340 in total broker compensation, although the borrower signed a broker fee agreement on October 6 for $4,500. The broker had also told the borrower the rate was "6.25% locked for 45 days" with no lock confirmation from the lender; the loan closed at 6.75% with a one-point discount.
1. Score each disclosure on timing. Which deadlines were met and which were blown? Show the counting.
Read the worked answer
Loan Estimate - met. Application Monday, October 6. The creditor must deliver or place the LE in the mail no later than the third business day after receipt of the application: Tuesday Oct 7, Wednesday Oct 8, Thursday Oct 9. Issued October 8. Compliant.
Closing Disclosure - met. The CD must be received at least three business days before consummation. Delivered October 30; counting three business days forward lands on Tuesday, November 4. Consummation November 4. Compliant.
Mortgage Loan Disclosure Statement - blown twice over. Under Business and Professions Code section 10240 the broker's MLDS must be delivered within three business days after receipt of the application and, in any event, before the borrower becomes obligated.
- Three business days from October 6 expired October 9. The statement went out November 12 - over a month late.
- The borrower signed November 3 and funds disbursed November 4. The MLDS arrived after the borrower was already obligated. That is the more serious defect, because the disclosure's entire purpose is to inform the decision before it is made.
The lesson: two of three timelines were fine. The exam point is not "everything was late" - it is knowing which rule attaches to which document and counting from the right trigger.
2. Analyze the $1,200 fee and the $7,340 versus $4,500 compensation discrepancy. What must the broker do?
Read the worked answer
The $1,200 up-front fee. Funds a borrower pays for services not yet performed are trust funds. Depositing them into the general operating account is commingling, which is independently a ground for discipline against a DRE licensee regardless of whether the borrower ultimately gets value. The fee must sit in a trust account until earned, and if the loan had not closed, the unearned portion would have to be refunded with an accounting.
The $7,340 versus $4,500 gap.
- $7,340 − $4,500 = $2,840 charged over the signed fee agreement.
- The MLDS must state the broker's actual compensation. Here the statement is internally revealing: it discloses a number the broker had no signed authority to collect.
- Increasing broker compensation beyond the executed agreement without the borrower's informed written consent is an overcharge and a honesty/dealing problem, not a clerical error.
Required remediation:
- Refund $2,840 to the borrower (plus any finance-charge effect of the overage).
- Reconcile the trust account and move all unearned borrower funds into trust.
- Re-issue a corrected MLDS and document why it is late.
- Expect the DRE to look at the whole file, not just the late statement.
3. The rate went from a stated "6.25% locked" to 6.75% with a point. Assess the broker's exposure and quantify the harm.
Read the worked answer
The representation. A rate is locked only when the lender has issued a written lock with a stated expiration and price. A broker who says "locked" without one has misrepresented a loan term - actionable as false or misleading dealing and as false advertising, independent of whether the final rate was still "market."
Quantify it:
- Discount point: 1% of $612,000 = $6,120 in added cost.
- Rate differential: 6.75% vs. 6.25% on $612,000 is roughly $183 per month in additional interest at the outset - material by any measure, and it compounds over the loan's life.
Cure options: a lender credit equal to the point plus a documented rate-relock at the quoted price, or a cash remediation reflecting the present-value cost of the rate difference. A simple apology does not cure a broken lock representation.
Process fix: written lock confirmation before any rate is described as locked, a lock disclosure to the borrower stating the price, expiration, and float-down terms, and a file note whenever a quoted rate changes. The broker should assume the borrower's complaint will arrive with these three numbers in it.