TRID Loan Estimate Revision When Interest Rate Index Changes

Issue/Inquiry

Must a revised Loan Estimate be issued if the APR of an ARM loan has changed due to changes in the index, or can the change in the interest rate be taken care of with the Closing Disclosure?

Response Summary

If there was no lock on the rate of interest when it was disclosed in the Loan Estimate, a change in the index on which the rate of interest is calculated is not a changed circumstance requiring a revised Loan Estimate to be provided. The Closing Disclosure will disclose the rate of interest, calculated at the index value and margin in effect at consummation.

Response Detail

Under Regulation Z, when the Loan Estimate is issued for an adjustable rate loan, and the rate of interest at consummation cannot be known, the interest rate disclosed will be calculated using the index value and margin in effect at the time the disclosure is delivered. Official Commentary, ¶37(b)(2)-1.

The Loan Estimate must disclose whether the rate of interest is locked for a specific period of time, which will be labeled as a “rate lock.” The rate lock statement is accompanied by a statement that the interest rate and any points and lender credits may change unless the interest rate has been locked, as well as the date and time (including the applicable time zone) at which the estimated closing costs expire. 12 CFR §1026.37(b)(2).

This means that if there is a valid rate lock in place, the Bank must honor such even though there is a change in the index on which the interest rate calculation is based. If there is no valid rate lock in place, the interest rate and any interest rate dependent charges may change as the index changes.

If the interest was not locked when the Loan Estimate was provided but is subsequently locked, this is a changed circumstance requiring a revised version of the Loan Estimate to be provided no later than three business days after the date the interest rate is locked. The revised Loan Estimate must disclose the revised interest rate, points, lender credits, and any other interest rate dependent charges and terms. Even if the rate of interest hasn’t changed since the original Loan Estimate was provided, a revised Loan Estimate must still be issued if the rate is locked. 12 CFR §19(e)(3)(iv)(D). Official Commentary, ¶19(e)(3)(iv)(D)-1.

The Closing Disclosure must disclose the loan terms, including the rate of interest at consummation, which is calculated using the index value and margin at the time of consummation. 12 CFR §38(b)(2). This means that the rate of interest has changed since the loan estimate was provided and, because there was no rate lock and the index has changed, the rate disclosed at consummation will be based on the index value and margin at the time of consummation.

This entry was posted on Monday, December 28th, 2015 at 2:00 pm.