RSK.IQ Question of the Week 9/6/16

TRID Loan Estimate and Interest Rate Changes

Issue/Inquiry

The Bank asks whether a revised Loan Estimate must be issued if the APR of an ARM loan has changed due to changes in the index, or can the interest rate change be covered by the Closing Disclosure?

Response Summary

If there was no lock on the rate of interest disclosed in the Loan Estimate when it was provided, a change in the index upon which the rate of interest is calculated is not a changed circumstance requiring a revised Loan Estimate to be provided. The rate of interest will change as the index changes, along with any interest rate-dependent fees. 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 determined in advance, the interest rate disclosed will be calculated using the index value and margin in effect at the time the disclosure is delivered. Official Commentary, ¶1026.37(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 “Rate Lock.” The “Rate Lock” statement is accompanied by a statement that the interest rate, any points, and any lender credits may change unless the interest rate has been locked, and 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 the rate lock even though there is a change in the index on which the interest rate calculation is based. If there is no rate lock in place, however, then 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 §1026.19(e)(3)(iv)(D). Official Commentary, ¶1026.19(e)(3)(iv)(D)-1.

The Closing Disclosure must disclose the Loan Terms, which includes the rate of interest at consummation, calculated using the index value and margin in effect at the time of consummation. 12 CFR §1026.38(b)(2). In this case, the rate of interest will have changed since the Loan Estimate was provided, as the index has changed and there was no rate lock in effect.

This entry was posted on Tuesday, September 6th, 2016 at 3:00 pm.

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