NEWS: As you may remember, Wisconsin enacted a League-supported financial institutions modernization law this spring. The League published a Compliance Courier with a long list of state statutes that changed. You may have overlooked the news that these amendments eliminated certain state disclosure requirements for residential mortgage loans.
Specifically, the bill repealed Wis. Stats. §138.052(7e) and (7m), as well as §138.056(6) – all effective as of March 22, 2024. Those provisions required special state versions of four disclosures or notices that largely duplicated requirements under federal law. Because of the redundancy, the state repealed them.
Credit unions should update their mortgage lending procedures, checklists, and audit materials to remove references to these requirements.
Let’s look at each of the four changes in more detail.
Pre-application disclosure
Section 138.052 of the Wisconsin Statutes applies to any loan (with some exceptions) secured by a first lien real estate mortgage (or equivalent security interest in) on a one- to four-family dwelling that the member uses as their principal residence. This broad definition may include purchase money loans, refinancings, home improvement loans, home equity loans, mobile homes attached to real estate, and HELOCs. (An “equivalent security interest” is a junior lien where the credit union holds the only senior lien.)
One part of §138.052 – Wis. Stats. §138.052(7e)(b) – had required credit unions and other lenders to provide a special disclosure before accepting a fee or application for a covered mortgage loan.
The League provided a sample in its ii Release No. B064, which looked like this:
That part of §138.052 has now been repealed, and this pre-application disclosure is no longer required. We have removed our sample form, which appeared in various ii Releases.
Wisconsin eliminated this pre-application disclosure because it largely duplicated information that is disclosed to mortgage borrowers in the Loan Estimate form – the early disclosures that federal regulations mandate for most mortgage loans. (See The League’s ii Release No. B070 for details on the Loan Estimate.)
Please note that credit unions still must comply with all of the other subsections of §138.052, which are summarized in our ii Release No. B047. These address, for example, prepayment rights, escrow payment options, late payment fees, and so on.
State mortgage transfer disclosure
Wis. Stats. §138.052(7m) – another provision within §138.052 – required a lender to notify a mortgage borrower if the payment, collection or other loan or escrow services related to the loan were sold or released. The notice had to be in writing and include the name, address and telephone number of the party to whom servicing of the loan was being sold or released. The credit union was to deliver the notice to the member by mail or personal service within 15 working days.
But most mortgage loans are subject to the federal Real Estate Settlement Procedures Act (RESPA) and the CFPB’s Reg. X, and those laws require a Notice of Servicing Transfer at least 15 days before the effective date of the transfer. For information on RESPA, see The League’s ii Release No. B014.
Since the Wisconsin notice essentially duplicated the RESPA notice, the state repealed its requirement.
State adverse action notice
A third provision in §138.052 – §138.052(7e)(a) – had its own Wisconsin “adverse action notice” requirement for mortgage lenders. However, an adverse action notice that complied with the federal Equal Credit Opportunity Act and the CFPB’s Reg. B satisfied the state’s requirement. For that reason, most Wisconsin lenders may not even have been aware of the state law. Since it was redundant, it has been repealed.
First mortgage variable rate notice
At this point, we’ll leave §138.052 behind and move to a different part of the Wisconsin Statutes, §138.056 on variable rate loans. That section of the statutes generally applies to the same loans covered by §138.052 (as summarized above), including all first-lien mobile home loans (whether or not attached to real estate), if the loans provide for a variable rate. A “variable rate loan” is a loan that includes contract terms allowing the interest rate to be increased or decreased.
One part of that law – Wis. Stats. §138.056(6) – imposed special notice requirements on credit unions and other lenders before making a variable rate mortgage loan.
The League provided a sample in its ii Release No. B064, which looked like this:
Again, the information in that state-mandated notice is largely covered in mandatory federal disclosures, making the state requirement unnecessary. So, that subsection of the statutes was repealed, and this variable rate disclosure is no longer required. We have removed our sample from our ii Releases.
Please note that credit unions still must comply with all the remaining provisions of §138.056, such as those related to rate change notices, approved indexes, rate contract requirements, and so on. These are summarized in The League’s ii Release No. B030.