Revised Loan Estimate Under the New TILA-RESPA Integrated Disclosures Rules

Inquiry/Issue

The Bank asked what circumstances would justify issuing a revised Loan Estimate under the new TILA-RESPA Integrated Disclosures (“TRID”) rules.

Response Summary

Under the new TRID rules, a creditor may provide a revised Loan Estimate within three business days of learning of changed circumstances which cause the original estimated charges to be out of tolerance. This is similar to the current RESPA rules allowing a revised GFE to be issued, but the TRID rules are more precise and will likely be more strictly enforced. Also, the Loan Estimate must be mailed or delivered at least seven business days prior to closing. If a revised Loan Estimate will be issued during the waiting period, either the creditor cannot use the revised Loan Estimate or the closing must be postponed to allow for the waiting period.

Response Detail

As per RSK’s “Upcoming Action Compliance Alert” last week, which provides the latest information on forthcoming compliance changes, the effective date of the TRID rules has been pushed back from August 1st to October 1st. The effect of changed circumstances under the current RESPA rules, which was discussed in last week’s “RSK.IQ Question of the Week,” will continue until then. However, the timeframe from now and when the new rules go into effect should be employed as strategically as possible, which means that it is not too soon to consider the circumstances under which a revised Loan Estimate can be issued.

Under the TRID rules, the Bank can provide a revised Loan Estimate re-disclosing a settlement charge if changed circumstances cause the estimated charges to increase. If changed circumstances have caused either the charges subject to zero tolerance to increase, or in the case of charges subject to the 10 percent cumulative tolerance, an increase to the sum of the charges by more than 10 percent, then the Bank may, but is not required to, issue a revised Loan Estimate. 12 CFR §1026.19(e)(3)(iv)(A); Official Interpretations, ¶19(e)(3)(iv)(A)-1.

The RESPA rules for issuing a revised GFE are similar, but in practice, many banks issued revised GFEs even though the changes reflected in the GFE did not result in the charges originally disclosed becoming out of tolerance. The new TRID rules are more likely to be strictly enforced, so the Bank should be sure to issue a revised Loan Estimate only when the charges originally disclosed are no longer within tolerance due to changed circumstances.

So, what are “changed circumstances”? For the purpose of this rule, they are:

• Changed circumstances which cause the settlement charges to exceed the permitted tolerances
• Changed circumstances making the consumer ineligible for the charges previously disclosed, such as those effecting creditworthiness or collateral value
• When the consumer requests revisions to the credit or settlement terms that cause an estimated service or charge to increase
• The points or credits change when the interest rate is locked after the Loan Estimate has been issued
• When the consumer indicates an intent to proceed more than 10 days after the Loan Estimate has been delivered or placed in the mail
• When the creditor reasonably believes that the settlement will take place more than 60 days after the Loan Estimate has been provided, provided the Loan Estimate states that the creditor can issue a revised Loan Estimate at any time prior to 60 days before closing. 12 CFR §1026.19(e)(3)(iv)(A) – (F).

With regards to settlement charges, changed circumstances are:

• An extraordinary event beyond the control of any interested party or other unexpected event specific to the consumer or transaction
• Information specific to a consumer or transaction that the creditor relied upon when providing the disclosures that was inaccurate or changed after the disclosures were provided
• New information specific to the consumer or transaction that the creditor did not rely on when providing the original Loan Estimate. 12 CFR §1026.19(e)(3)(iv)(A).

As for changed circumstance affecting eligibility, an example would be a creditor relying upon the consumer’s representation of a $90,000 annual income when credit underwriting demonstrates that the consumer has only $60,000 in income, or when the creditor relies upon the incomes of two applicants and one of the applicants becomes unemployed.

The Bank must keep in mind, however, that the revised disclosures may reflect increased charges only to the extent that the reason for revision actually increased the particular charge. For example, if a consumer requests a rate lock extension, then the revised disclosures may reflect a new rate lock extension fee, but the fee may be no more than the rate lock extension fee charged by the creditor in its usual course of business, and other charges unrelated to the rate lock extension may not change. Official Interpretations, ¶19(e)(3)(iv) – 2.

Again, the present RESPA rules for GFEs are similar, but many banks included other changes that may have occurred since the initial GFE was provided, even though they were unrelated to the particular change justifying the issuance of the revised GFE. The new TRID rules are more explicit and thus more likely to be strictly enforced.

Timing will be important under the TRID rules. Generally, a creditor must deliver or place in the mail the revised Loan Estimate to the consumer no later than three business days after receiving the information sufficient to establish one of the reasons for the revision. 12 CFR §1026.19(e)(4)(i); Official Interpretations, ¶19(e)(4)(1) -1.

This too is similar to the current RESPA rules. Here is the kicker, however:

The creditor is required to deliver or place in the mail the Loan Estimate no later than seven business days before consummation of the transaction. 12 CFR §1026.19(e)(1)(iii)(B). This rule applies to the initial Loan Estimate, so that the closing must be scheduled accordingly. It also applies to the revised Loan Estimate, however, so that if the settlement is scheduled during the applicable waiting period for the revised Loan Estimate, the creditor either cannot use the revised Loan Estimate or it must postpone the settlement to allow for the seven business day period to elapse.

What should the Bank do to comply with these rules? It is important to properly document the reasons and timing for the issuance of the revised Loan Estimate. As noted in RSK’s recent “TILA/RESPA Integrated Disclosure (TRID) Compliance Guide,” this standard for compliance should include, at a minimum, evidence of:

• The original Loan Estimate
• Documentation supporting the reason for revision
• Documentation supporting the increased settlement cost(s)
• The revised Loan Estimate
• Evidence of compliance with the time/delivery requirements.

 

 

This entry was posted on Monday, June 22nd, 2015 at 3:00 pm.