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Wednesday, November 25, 2015

Re-disclosure due to Rate Lock

QUESTION
We understand that a revised disclosure must be sent to the consumer when there are certain revisions. However, are we required to send a revised LE for a rate lock when the interest rate and terms remains the same? And if the loan is not initially locked, are we prohibited from adding any origination fees if they were not initially disclosed?

ANSWER
The regulation is not entirely clear on whether a revised disclosure is required when a rate is locked at the same rate that was originally disclosed. §1026.19(e)(3)(iv)(D) states:

"[N]o later than three business days after the date the interest rate is locked, the creditor shall provide a revised version of the disclosures required under paragraph [1026](e)(1)(i) of this section to the consumer with the revised interest rate, the points disclosed pursuant to § 1026.37(f)(1), lender credits, and any other interest rate dependent charges and terms."

One can infer this language presumes that a rate-lock in and of itself is a revision requiring re-disclosure. However, the regulation is silent as to whether revised disclosures need to be provided if there is a rate lock that does not change the initially disclosed terms. Given the current state of the enforcement environment on the state and federal levels, it is probably prudent to re-disclose even when your rate lock does not change terms.

As to the addition of origination charges when the loan is locked, whatever charge is changed cannot be used for purposes of resetting a good faith tolerance. Only revised disclosures that are produced pursuant to one of the §1026.19(e)(3)(iv) triggering events allow a lender to reset the tolerance for purposes of determining good faith. Therefore, if a lender sends a revised disclosure because of a rate lock – a triggering event pursuant to §1026.19(e)(3)(iv) – and it adds new origination fees to the disclosures, then the revised disclosures could be used to calculate some good faith tolerances, but not others.

Section 1026.17(c)(2)(i) provides that disclosures may be estimated based on the best information reasonably available to the creditor at the time the disclosures are made. That requires the creditor, acting in good faith, to exercise due diligence in obtaining information. [Comment 17(c)(2)(i)-1]

If a creditor adds an origination fee that is unrelated to the rate lock, then that unrelated fee cannot be used to reset the base tolerances. Whether fees are changed or added due to a rate lock or other reason, creditors should always establish a documented defensible position supporting such changes and have policies in place ensuring that any changes adhere to their good faith obligations for all estimates to be based on the best information reasonably available to the creditor at the time the initial disclosures are made.

Michael Goldhirsh
Executive Director/Vendors Compliance Group 
Director/Legal & Regulatory Compliance - Lenders Compliance Group