While most seem to fully understand the rules regarding the disclosure of an initial Loan Estimate, many seem to have a more difficult time understanding when a revised loan estimate is required. For example, I have heard the following questions asked many times:
- When may a revised Loan Estimate be issued?
- When must a revised Loan Estimate be issued?
- Does a change in the APR require a new Loan Estimate?
- When can a Loan Estimate be revised to adjust fees?
To answer these questions, we have to understand how TRID has changed things.
Understanding Revised Loan Estimates Under TRID
Under TRID, the Truth-in-Lending (TIL) disclosure was combined with the Good Faith Estimate (GFE). Prior to TRID, Regulation Z required a new initial TIL to be provided every time the APR changed outside of the tolerance (0.125% for irregular or 0.25% for regular). Under TRID, however, an APR change does not trigger a requirement for a new Loan Estimate.
To some, this concept has been hard to grasp as for years Regulation Z has required a new TIL any time the APR was changed beyond the tolerance levels. While the CFPB hasn’t blatantly come out and said why they don’t require a new LE for APR changes, it seems logical to me to assume they aren’t as worried about a revised LE as all consumers now receive the Closing Disclosure three days prior to closing. Basically, the APR (as required under Regulation Z) is essentially being redisclosed for every single loan through the initial Closing Disclosure.
This then leads us to the question of, when is a revised Loan Estimate required?
Revised Loan Estimate Rules
The reality is that there is only one trigger that absolutely requires a new Loan Estimate: when a loan initially had a floating rate that becomes locked. To put it another way, the only time you must redisclose an LE is when you lock a rate when it had been floating.
That said, you can reissue an LE any time you want under two circumstances. First, you can reissue it as a courtesy any time you want (which I personally don't recommend). Some financial institutions believe that this helps the customer to better understand the loan terms, so they will reissue a Loan Estimate for any minor change to the LE. To me, however, I don’t view this as a best practice as multiple LEs will cause confusion in regards to calculating the tolerances. The way the rules work is that tolerances are calculated off of the original Loan Estimate, unless there is a valid reason for providing a new LE. This means that banks or Credit Unions that provide “courtesy” LEs to customers must discern the difference between an LE that adjusts fee tolerances (such as an LE that results from a changed circumstance) and a courtesy LE that does not adjust the fee tolerances. As you can imagine, this can become extremely complicated very quickly when a financial institution is providing courtesy LEs. Therefore, my recommendation is to only provide a revised loan estimate when it is required or will have an effect on fee tolerances.
The second time you can (but aren’t required to) provide a revised Loan Estimate is if you want to change your fees due to a changed circumstance. Technically, this section of Regulation Z is not referred to as "changed circumstances" but is 1026.19(e)(3) which is titled "Revised Estimates." This "revised estimates section" provides a total of five optional reasons where a revised Loan Estimate can be used to reset "good faith" (i.e. your tolerance calculations), if a financial institution would choose to do so. These reasons include 1) changed circumstance affecting settlement charges, 2) changed circumstance affecting eligibility, 3) revisions requested by the consumer, 4) the expiration of fees without the consumer's intent to proceed, and 5) certain instances in delayed settlement date on a construction loan. The reality is that a bank or credit union is never required to provided a new LE for one of these five reasons - as long as they are comfortable with any fee changes resulting from the changed circumstance, they don’t need to reissue the LE. That said, by all means, a financial institution can reissue the LE if they want to revise their fee tolerances when there is a valid reason to do so, such as a changed circumstance affecting settlement charges.
Rules for the Revised Loan Estimate
The office rule for revised Loan Estimates can be found in 1026.19(e)(3) of Regulation Z as follows:
(iv) Revised estimates. For the purpose of determining good faith under paragraph (e)(3)(i) and (ii) of this section, a creditor may use a revised estimate of a charge instead of the estimate of the charge originally disclosed under paragraph (e)(1)(i) of this section if the revision is due to any of the following reasons:
(A) Changed circumstance affecting settlement charges. Changed circumstances cause the estimated charges to increase or, in the case of estimated charges identified in paragraph (e)(3)(ii) of this section, cause the aggregate amount of such charges to increase by more than 10 percent. For purposes of this paragraph, “changed circumstance” means:
(1) An extraordinary event beyond the control of any interested party or other unexpected event specific to the consumer or transaction;
(2) Information specific to the consumer or transaction that the creditor relied upon when providing the disclosures required under paragraph (e)(1)(i) of this section and that was inaccurate or changed after the disclosures were provided; or
(3) New information specific to the consumer or transaction that the creditor did not rely on when providing the original disclosures required under paragraph (e)(1)(i) of this section.
(B) Changed circumstance affecting eligibility. The consumer is ineligible for an estimated charge previously disclosed because a changed circumstance, as defined under paragraph (e)(3)(iv)(A) of this section, affected the consumer's creditworthiness or the value of the security for the loan.
(C) Revisions requested by the consumer. The consumer requests revisions to the credit terms or the settlement that cause an estimated charge to increase.
(D) Interest rate dependent charges. The points or lender credits change because the interest rate was not locked when the disclosures required under paragraph (e)(1)(i) of this section were provided. No later than three business days after the date the interest rate is locked, the creditor shall provide a revised version of the disclosures required under paragraph (e)(1)(i) of this section to the consumer with the revised interest rate, the points disclosed pursuant to § 1026.37(f)(1), lender credits, and any other interest rate dependent charges and terms.
(E) Expiration. The consumer indicates an intent to proceed with the transaction more than ten business days after the disclosures required under paragraph (e)(1)(i) of this section are provided pursuant to paragraph (e)(1)(iii) of this section.
(F) Delayed settlement date on a construction loan. In transactions involving new construction, where the creditor reasonably expects that settlement will occur more than 60 days after the disclosures required under paragraph (e)(1)(i) of this section are provided pursuant to paragraph (e)(1)(iii) of this section, the creditor may provide revised disclosures to the consumer if the original disclosures required under paragraph (e)(1)(i) of this section state clearly and conspicuously that at any time prior to 60 days before consummation, the creditor may issue revised disclosures. If no such statement is provided, the creditor may not issue revised disclosures, except as otherwise provided in paragraph (f) of this section.
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