Since the inception of TRID, I have been advocating that there is really only 1 reason why a financial institution MUST provide a revised Loan Estimate.
Sure, there are several reasons why a creditor could provide a revised, Loan Estimate (LE). For example, a “courtesy” LE could be provided to the applicant to give them up-to-date information regarding the loan. In addition, a creditor may choose to provide a revised LE due to a changed circumstance if the creditor wanted to adjust applicable fees that result from the valid changed circumstance.
[A quick side note on this. Technically speaking, the section of Reg Z is which we often refer to as changed circumstances actually is found in 1026.19(e)(3)(iv) and is titled “revised estimates.” This section provides a total of six “reasons” where a revised LE can reset tolerances for purposes of determining good faith, of which only 2 reasons are actually “changed circumstances.” Since the language of “changed circumstance” is understood as a reason to reset tolerances, I often use that word a bit more freely than how it is written in Regulation Z and wanted to point this out so that we are all on the same page. Again, technically speaking.]
My point in this - which has been my point for years now - there are several reasons why a creditor could provided a revised LE, but there is only 1 reason under 1026.19(e)(3)(iv) why a creditor must provide a revised LE: when a floating rate becomes locked in.
Interest Rate Dependent Charges
Section 1026.19(e)(3)(iv)(D) of Regulation Z requires a creditor to provide a revised Loan Estimate within three business days after the date an interest rate is subsequently locked on a loan where an initial LE was issued without a (signed) rate lock agreement in place. In other words, if a rate was initially floating and is later locked, a revised LE must be provided within three business days of the rate lock.
While that part of the rule seemed fairly clear, the original TRID rules left several questions to be answered. For example, there was some confusion as to whether a revised LE is really needed in cases where a previously floating interest rate is locked but a credit does not want to (or need to) reset tolerances on points, credits, and other interest rate dependent charges. Basically, the thought was that it did not seem logical to reissue a Loan Estimate if points, credits and other fees related to the interest rate were properly disclosed in the initial LE and were not changing due to the rate lock.
Another challenge that the original TRID rules created related to instances where a previously floating rate was locked in after a Closing Disclosure was provided. Under the original TRID rules, a creditor was not permitted to reset tolerances through a Closing Disclosure. This was especially problematic as TRID rules (old and new) don’t allow a creditor to issue a revised Loan Estimate once a Closing Disclosure has been provided. Therefore, the old rules left a number of questions on what creditors should do in the event a floating rate was locked after a CD had already been issued to an applicant.
TRID 2.0 Rules for Rate Locks
To address the concerns found in the original TRID rules, the CFPB attempted to clarify the rules in TRID 2.0 by providing new and revised comments to section 1026.19(e)(3)(iv)(D) of Regulation Z.
A Revised LE Each Time a Rate is Initially Locked
First, the CFPB clarified that a revised LE is required every time a rate is initially locked. This means that, regardless of how a rate lock affects (or does not affect) points, credits, and other fees, a revised Loan Estimate is required any time a floating rate is locked before a Closing Disclosure is issued to a consumer. The CFPB explains their reasoning for this in the preamble to the final rule:
“The Bureau's concern was, and continues to be, that, absent a rate lock agreement, the terms and charges of the loan as disclosed on the initial Loan Estimate are more likely to change, as the consumer would only be able to rely on the interest rate related charges and terms on the Loan Estimate when the rate has been locked.”
The bottom line is that the CFPB, as explained in the preamble to the 2017 TRID amendments “explicitly requires the creditor to provide a revised Loan Estimate when the initial Loan Estimate did not disclose an interest rate subject to a rate lock agreement, even if the terms and charges disclosed are the same.”
Revised Closing Disclosures for Initial Rate Locks
In response to the confusion on what is required when a floating rate is locked after a CD has been issued, the CFPB created a new comment in the commentary to TRID 2.0. This comment explains that a revised Closing Disclosure isn’t automatically required when a floating rate is locked, after an initial CD has been issued. The CFPB clarified by saying in the preamble to the 2017 TRID amendments that “such a corrected Closing Disclosure is required only when the disclosures have become inaccurate, pursuant to § 1026.19(f)(2).” In other words, a revised CD would only be required if the charges and terms disclosed on the initial CD become inaccurate. This is a variation from the hard-line rule for the Loan Estimate, but seems to be justified as the CD is supposed to be final numbers where the LE is just an estimate.
The CFPB further explained their thought process for not automatically requiring a revised CD by stating the following in the preamble: “Notably, information disclosed on the Loan Estimate under § 1026.37(a)(13) concerning the terms of the rate lock agreement are not required on the Closing Disclosure under § 1026.38, therefore a subsequent rate lock agreement by itself would not require a corrected Closing Disclosure unless the charges and terms become inaccurate.”
The new commentary to 1026.19(d)(3)(iv)(D)(2) reads as follows:
“After the Closing Disclosure is provided. Under § 1026.19(e)(3)(iv)(D), no later than three business days after the date the interest rate is locked, the creditor must provide to the consumer a revised version of the Loan Estimate as required by § 1026.19(e)(1)(i). Section 1026.19(e)(4)(ii) prohibits a creditor from providing a revised version of the Loan Estimate as required by § 1026.19(e)(1)(i) on or after the date on which the creditor provides the Closing Disclosure as required by § 1026.19(f)(1)(i). If the interest rate is locked on or after the date on which the creditor provides the Closing Disclosure and the Closing Disclosure is inaccurate as a result, then the creditor must provide the consumer a corrected Closing Disclosure, at or before consummation, reflecting any changed terms, pursuant to § 1026.19(f)(2). If the rate lock causes the Closing Disclosure to become inaccurate before consummation in a manner listed in § 1026.19(f)(2)(ii), the creditor must ensure that the consumer receives a corrected Closing Disclosure no later than three business days before consummation, as provided in that paragraph.”