When can a Revised RESPA GFE be Issued under the Existing Rule Due to Changed Circumstances?

Inquiry/Issue

The initial credit report had a score below what was required for PMI. If the Bank updates 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 for this, but how should the cost be reflected in the consumer protection disclosures? The GFE and Early TIL have already been issued.

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 respect to the 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).

As for the 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 (the “GFE”). The tolerance between the estimated cost of the 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. That means that the aggregate cost 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).

The question would be whether charging the customer an extra $150 for the credit fee-related charge would result in a charge at closing that was outside the 10 percent tolerance.

Where the settlement costs exceed the prescribed tolerances, the lender may be in a position of having to pay for the excess itself, unless changed circumstances justify the issuance of a revised GFE. Under Section 1024.2(b) of Regulation X, the term “changed circumstances” means:

• Acts of God, war, disaster, or other emergency
• Information particular to the borrower or transaction that was relied upon in providing the GFE and that changes or is found to be inaccurate after the GFE issued
• New information particular to the borrower or transaction that was not relied upon in providing the GFE
• Other circumstances that are particular to the borrower or the transaction, including boundary disputes, the need for flood insurance, or environmental problems

A revised GFE provided in response to changed circumstances must be issued within three business days of the lender learning of the changed circumstances. The GFE, however, can be revised only to the extent that the particular changed circumstances affected its disclosures. No unrelated changes can be made.

The lender may also issue a revised GFE in response to changes requested by the borrower that alter the settlement charges or the terms of the loan, as per section 1024.7(f)(3) of Regulation X. If a revised GFE is to be provided, the lender must do so with three business days of the borrower’s request.

In this case, information concerning the borrower’s credit quality which the Bank relied upon in establishing a condition of the loan 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.

The Bank should document the changed circumstances and the date it became aware of the change. This is important as the revised GFE must be issued within the three business day period in order to be valid.

The revised GFE will be increased by the cost for the updated credit score. The costs for services charged at closing will then be within the allowable tolerance for the fees disclosed in the GFE, as revised.

NOTE:  Effective August 1, 2015, the disclosure requirements of RESPA and the Truth-in-Lending Act will be consolidated for consumer mortgage loans. Please contact us to obtain our whitepaper on these important changes. Next week’s “RSK.IQ Question of the Week” will address the question of how changed circumstances will affect the Loan Estimate under the new rules.

This entry was posted on Monday, June 15th, 2015 at 2:30 pm.