TRID Rules and Revised Loan Estimate

Issue/Inquiry

The Bank wants clarification as to when the Loan Estimate can be revised in the following scenarios:

1. The applicant indicates that the loan is for a refinance up to the maximum of the payoff, which will be about $169,000 (i.e., “Refinance – Max to qualify up to payoff amount, about $169,000”).The Bank would send a Loan Estimate based on the amount of $169,000, since it couldn’t be sure of the actual pay off.  It will pay for most of the fees and costs as “Lender Credits,” but the applicant will pay for the mortgage recording fee. If it is later determined that the actual pay off amount is $167,450, would this be a changed circumstance requiring a revised Loan Estimate to be provided?

2. Following the same scenario as #1 above, if it is later determined that the actual payoff amount is $170,840, would this be a changed circumstance requiring a revised Loan Estimate to be provided?

3. This follows the same scenario as #1, but the appraisal shows a property value of $160,000 and cannot exceed a loan-to-value of 80 percent, thus allowing a maximum loan amount of $128,000. The applicant will have to make up any difference between the loan amount and the payoff. The applicant accepts these terms (and provides an Intent to Proceed). If the actual payoff is $167,450, rather than the $169,000 originally estimated by the applicant, is this a changed circumstance requiring a revised Loan Estimate to be provided, since the applicant will be covering any difference anyways?

Response Summary

The TRID Rule permits a revised Loan Estimate to be provided to the consumer for certain reasons. Under scenario #1, a revised Loan Estimate would probably not be justified, since the decrease in the payoff amount would not result in an increase in charges paid by the consumer in excess of those disclosed in the original Loan Estimate.

In scenario #2, if points are being charged, an increase in the loan amount would also increase the dollar amount paid by the consumer in excess of the variance permitted by the TRID Rule. In that case, a revised Loan Estimate would be permitted. Any increase in the charges covered by Lender Credits as a result of an increase in the Loan Amount, however, would be covered by the Bank, since the Official Commentary to Regulation Z does not allow Lender Credits to change, except that the consumer shall not pay any more than had been disclosed in the Loan Estimate.

In scenario #3, the loan amount will not change, while any increase in the out-of-pocket costs of the consumer as a result of an increased payoff amount will be due to a circumstance independent of any requirement imposed by the Bank. In such case, no revised Loan Estimate would be provided nor would the Bank be responsible for the increased out-of-pocket costs to the consumer.

Response Detail

Generally, the consumer cannot be required to pay more for settlement services than the amount stated on the Loan Estimate, unless a new Loan Estimate is provided, reflecting the increased fee or charge, and the fee or charge was increased as a result of the following permissible reasons for revision:

• Changed circumstances that occur after the Loan Estimate is provided that cause the estimated settlement charges to increase more than is permitted under the TILA-RESPA Integrated Disclosures (“TRID”) Rule
• Changed circumstances that occur after the Loan Estimate is provided that affect the consumer’s eligibility for the terms for which the consumer applied for or the value of the security of the loan
• Revisions to the credit terms or the settlement are requested by the consumer
• The interest rate was not locked when the Loan Estimate was provided, and locking the rate causes the points or lender credits disclosed on the Loan Estimate to change
• The consumer indicates an intent to proceed more than 10 business days after the Loan Estimate was provided
• The loan is a new construction loan and settlement is delayed by more than 60 calendar days, if the original Loan Estimate states clearly and conspicuously that at any time prior to 60 calendar days before consummation, the creditor may issue revised disclosures

For the purposes of providing a revised Loan Estimate, “changed circumstances” are:

• An extraordinary event beyond the control of any interested party or other unexpected event specific to the consumer transaction
• Information specific to the consumer or transaction that the creditor relied upon when providing the Loan Estimate and that was inaccurate or changed after the disclosures were provided
• New information specific to the consumer transaction that the creditor did not rely upon in providing the Loan Estimate

When a creditor revises a Loan Estimate for any of these reasons, the revised Loan Estimate may reflect increased charges only to the extent actually justified by the reason for the revision.

Now let us apply these rules to the above scenarios.

Scenario #1

The original Loan Estimate showed the Loan Amount as being $169,000, the amount the consumer thought the payoff would be. If the actual loan amount is $167,450, this would not be a changed circumstance justifying a revised Loan Estimate under most of the applicable rules.

With respect to settlement charges, a changed circumstance would justify a revised Loan Estimate only if it resulted in the charges being increased beyond the variance allowed by the TRID rules.  It seems unlikely that a decrease in the loan amount would result in increased charges.  Even if such charges decreased, however, the Lender Credit covering them would not be allowed to decrease under the prevailing interpretation of the TRID Rule. For example, if the Bank is providing in Lender Credits an amount sufficient to cover title insurance, the amount of Lender Credits would not be allowed to decrease even if the cost of the title insurance is decreased because of the lower loan amount.

Likewise, the recording fee for the mortgage would not be increased by a decrease in the loan amount.

Scenario #2

In this scenario, the actual loan amount has actually increased from the $169,000 of the original Loan Estimate to $170,040.

If points are being charged by the Bank, the dollar amount paid by the consumer would be a function of the points and the loan amount. An increase in the loan amount would result in a higher dollar amount being charged. In this scenario, if one point was being charged, the amount paid by the consumer would increase from the $1,690 disclosed in the original Loan Estimate to $1,704. Since the TRID Rule does not permit this disclosure to increase at closing from what was disclosed in the Loan Estimate, the increase in the payoff amount would be a changed circumstance allowing the Bank to provide a revised Loan Estimate to the consumer.

NOTE: In scenario #1, the amount of the loan will have decreased. Even if points were being charged in that scenario, the dollar amount charged to the consumer would also have decreased and, thus, a revised Loan Estimate would not have been justified.

It is possible that such an increase would also increase such settlement charges covered by the Lender Credits as title insurance, though it is unlikely that the increase would be outside the variance level established by the TRID Rule. Even if it was, the Official Commentary to Regulation Z indicates that the creditor must increase Lender Credits at closing to cover such increases, so that the consumer pays no more at closing than had been disclosed in the Loan Estimate.

The revised Loan Estimate must be delivered or mailed within three business days of the Bank learning of the increased payoff. It must be received by the consumer no later than four business days prior to consummation. If the Bank is mailing the revised Loan Estimate and relying on the presumption that a letter will be received three business days after it is mailed (or sent electronically), then the revised Loan Estimate must be placed in the mail or sent electronically no later than seven days prior to consummation. However, if the Bank has evidence that the consumer received the revised Loan Estimate earlier than the three business days after it is mailed or delivered, it may rely on that evidence and consider it to have been received on that date.

Scenario #3

In this last scenario, the amount of the loan will not change even if the amount of the payoff changes, since the loan amount is a function of the loan-to-value. This means that the amount that the consumer will pay out-of-pocket to satisfy the existing loan may increase or decrease from what was disclosed in the original Loan Estimate, depending on whether the payoff amount increases or decreases. Since this amount is incurred by the consumer independently of any requirement imposed by the Bank, however, it probably would not fall within any of the permissible reasons listed above for issuing a revised Loan Estimate. Likewise, it would not subject the Bank to the possibility of having to absorb charges that had not been properly disclosed in the Loan Estimate.

The one possibility in this scenario that may require a revised Loan Estimate to be provided is when the increase in the out-of-pocket expenses for the consumer affects the consumer’s eligibility for the terms of the loan applied for. This seems unlikely, but it would, of course, be dependent on the facts of the matter.

This entry was posted on Monday, October 5th, 2015 at 2:00 pm.