Anti Steering Disclosure: Templates & More

An anti-steering disclosure, often titled an Anti-Steering Loan Options Disclosure, is a form a mortgage broker or loan originator gives a borrower listing the loan options available from the creditors the originator works with, so the borrower can see that the loan being recommended was not chosen because it pays the originator more. It implements the anti-steering rule in Regulation Z, 12 CFR 1026.36(e), which was adopted under the Truth in Lending Act after the 2008 mortgage crisis to stop originators from directing borrowers into higher-rate or riskier loans in exchange for larger compensation.

The rule

Section 1026.36(e)(1) prohibits a loan originator from directing or steering a consumer to a loan because the originator will receive greater compensation from the creditor for that loan than for other loans the originator offered or could have offered, unless the loan is in the consumer's interest. The rule applies to closed-end loans secured by a dwelling, including purchase loans, refinances and reverse mortgages, and it applies whenever the originator's compensation comes from the creditor, which is the usual arrangement for mortgage brokers.

The safe harbor and what the disclosure shows

An originator is deemed to comply with the rule if it meets the safe harbor in section 1026.36(e)(2) and (3). It must obtain loan options from a significant number of the creditors it regularly does business with, which the official commentary defines as three or more, and for each type of transaction the consumer has expressed interest in (a fixed-rate loan, an adjustable-rate loan, or a reverse mortgage) present the consumer with:

1. The loan with the lowest interest rate.
2. The loan with the lowest interest rate that has no risky features: no negative amortization, no prepayment penalty, no interest-only payments, no balloon payment in the first seven years, no demand feature, and no shared equity or shared appreciation.
3. The loan with the lowest total dollar amount of discount points, origination points and origination fees.

The originator must have a good-faith belief that the consumer likely qualifies for the options presented. If it presents more than three loans for a transaction type, it must highlight the ones that meet these three criteria. The anti-steering disclosure is the document that records these options; it typically lists each loan with the creditor, the rate, the points and fees and the loan features, and the borrower initials or signs it to acknowledge receipt before the loan is locked.

When it is given

Regulation Z does not prescribe a form or a deadline, but brokers present the disclosure when they recommend a loan program, before the borrower commits to a rate lock, and keep a signed copy in the loan file for the record retention period in section 1026.25. Lenders that fund broker-originated loans review the disclosure as part of their compliance checks, and many require it on every brokered loan.

Not the same as the settlement services disclosures

The anti-steering disclosure is sometimes confused with the disclosures under the Real Estate Settlement Procedures Act that cover settlement service providers. RESPA's Affiliated Business Arrangement Disclosure tells a borrower that the lender or agent has an ownership interest in a title company, appraiser or other provider it is referring and that the borrower is free to shop, and RESPA section 8 prohibits kickbacks for referring settlement business. Those rules concern who performs the closing services; the anti-steering rule concerns which loan the borrower is placed in and how the originator is paid for it.