Issuing Revised RESPA GFE Due to Changed Circumstances

Inquiry/Issue

In order for a consumer borrower refinancing a mortgage loan to qualify for PMI, the borrower must have a credit score of 620 or above. The initial credit report had a score below this figure. If the Bank uses Rapid Re-Score to update the credit information, the borrower will qualify for PMI, but the cost will be $50 per major credit reporting agency or $150 altogether. The customer is willing to pay this sum, but how should it be reflected in the consumer protection disclosures? The GFE and Early TIL have already gone out.

Response Summary

Since this is a realty-related consumer loan, the increase in the credit fee will not be included in the finance charge and will not affect the Regulation Z disclosures. With regards to RESPA GFE, the credit fee would have been among the disclosed fees for services. RESPA, however, allows a revised GFE to be provided when changed circumstances affect settlement costs. The Bank should issue a revised GFE within three business days showing the increased credit fee for the Rapid Re-Score service.

Response Detail

Ordinarily, a credit report fee is included in the finance charge for a consumer loan subject to Regulation Z. However, when the consumer loan is real estate-related, as it is here, Regulation Z excludes the credit report fee from the finance charge. For that reason, the Bank can charge the additional $150 without affecting the finance charge or annual percentage rate calculations for the loan. 12 CFR 1026.4(c)(7)(iii).

With regards to RESPA disclosures, the credit fee would have been one of the charges for lender-required settlement services disclosed in Block 3 of the Good Faith Estimate of Settlement Costs (“GFE”). The tolerance between the estimate of the cost of services disclosed in Blocks 3, 4, 5, 6, and 7 of the GFE and the cost actually charged the borrower at closing is 10 percent. This means that the total charged for those services at closing cannot be greater than 10 percent above the sum of the amounts disclosed on the GFE, if the lender required a particular service provider to be used or the borrower selected a service provider from a list provided by the lender. 12 CFR 1024.7(e).

Undoubtedly, charging the customer an extra $150 for the credit fee-related charge would result in a charge at closing that was outside the tolerance.

RESPA allows a revised GFE to be provided when changed circumstances affect settlement costs. “Changed circumstances” include information relied upon by the creditor in providing the GFE which then changed or was found to be inaccurate after the GFE was issued. In this case, information particular to the borrower’s credit quality which the Bank relied upon had changed after the GFE was provided. For that reason, the Bank can issue a revised GFE if it does so within three business days of receiving the information establishing the changed circumstances. 12 CFR 1024.2(b); 7(f)(1). The revised GFE will be increased by the cost for the Rapid Re-Score service. The costs for services charged at closing will then be within the allowable tolerance for the fees disclosed in the GFE, as revised.

This entry was posted on Friday, August 1st, 2014 at 6:19 pm.