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Thursday, October 17, 2013

Changed Circumstance and Redisclosure

It is my understanding that unless there is a “changed circumstance”, a Good Faith Estimate (GFE) is binding on the lender. What constitutes a “changed circumstance” such that a revised GFE may be redisclosed and what is the time frame for redisclosing? 

As a general rule, the GFE is binding on the lender until its expiration. The exception to this rule is if there is a “changed circumstance”.

A “changed circumstance” includes: 
  • Acts of God, War, Disaster or other emergencies.
  • New information obtained that was not relied upon when the initial GFE was provided.
  • Identification of inaccurate information provided by the Borrower used to prepare the GFE.
  • Borrower requested changes in loan terms.
  • Other changes particular to the Borrower or transaction, including without limitation, boundary disputes, need for flood insurance, or environmental problems.
Additionally, a GFE must be redisclosed if the rate is locked after the initial GFE was provided. 
[12 CFR §1024.2(b)(1), §1024.7(f)]

None of the information collected by the loan originator prior to issuing the GFE may later become the basis for a “changed circumstance” upon which a loan originator may redisclose the GFE unless the loan originator can demonstrate that there was a change in the particular information or that it was inaccurate, or that the loan originator did not rely on that particular information in issuing the GFE.

The loan originator is presumed to have relied on the Borrower’s name, the Borrower’s monthly income, the property address, an estimate of the value of the property, the mortgage loan amount sought, and any information contained in any credit report obtained by the loan originator prior to providing the GFE.

Examples of situations where the reissuance of a GFE is warranted include, without limitation, the following:
  • Rate lock expiration or Borrower requests a rate lock extension at a cost to Borrower.
  • Loan amount changes due to Borrower request, change to payoff amount, change to obligations.
  • Borrower requests an escrow waiver or decides to no longer waive escrow.
  • Borrower estimated property value not supported by appraisal.
  • Credit quality change due to new information received such as FICO score, DTI, undisclosed debts, judgments, income change.
  • Occupancy change (i.e., property initially thought to be a primary residence becomes investment property).

Some situations must be evaluated on a case-by-case basis to determine if a changed circumstance occurred. Such situations include, without limitation:
  • Borrower not proceeding quickly to closing.
  • Parties added or removed from title.
  • Signing documents using a power of attorney.
  • Vendor for a settlement service goes out of business.
  • Property type changes (i.e., single family residence is actually multi-family).
  • GSE, FHA, mortgage insurance program changes.

Situations which do not qualify as a changed circumstance include, without limitation, the following:
  • Lender does not accept broker issued GFE.
  • Market fluctuations on a locked loan.
  • Borrower’s name.
  • Information in a credit report generated before the issuance of the GFE.
  • Any change which is known or should have been known by the loan originator at the time the initial GFE was issued.

If a changed circumstance exists, a revised GFE must be provided to the Borrower within 3 business days of receipt of information sufficient to establish a changed circumstance.

It is important to bear in mind that information related to a changed circumstance may come from a party other than a borrower (i.e., an appraisal with a value other than expected which increases or decreases the loan amount). 

The revised GFE can only reflect the changes which increased as a direct result of the changed circumstance. The changed circumstance should be documented and all documentation and information must be maintained for at least 3 years.

The above discussion reflects regulations in effect as of this date.  The reader should bear in mind that the Consumer Financial Protection Bureau has proposed a rule integrating mortgage disclosures under the Real Estate Settlement Procedures Act (Regulation X) and the Truth-in-Lending Act (Regulation Z) which will alter the definition of “changed circumstance”. The proposed rule can be found at

Joyce Pollison
Director/Legal and Regulatory Compliance
Lenders Compliance Group