QUESTION
We received a complaint from a borrower who said that we were not entitled to charge her a rate lock extension fee.
We disclosed that the rate lock expired
on a certain date and we disclosed the fee when the borrower chose to continue
to closing. But the borrower then said the rate lock expiration was our fault,
not theirs.
They say that it expired because we took too long to get things in
order, so they shouldn’t have to pay.
Did we comply with Regulation Z?
ANSWER
Given your scenario, Yes, you
complied with Regulation Z.
Regulation Z [Comment 19(e)(3)(iv)-2] advises that if a consumer
requests a rate lock extension, then the revised disclosures given by the
creditor should reflect any new rate lock extension fee, but the fee may be no
more than the rate lock extension fee charged by the creditor in its usual
course of business and other charges unrelated to the rate lock extension may
not change.
Please take note: state law might
address whether a rate lock extension fee is appropriate in this instance or a
rate lock agreement may provide details.
Perhaps a recent decision of a federal district court in
California may offer support to your situation.
In Muniz v. Wells Fargo & Co., 2018 U.S. Dist. (N.D. Cal. May 14, 2018), Muniz found a home
and applied for a mortgage loan with Wells Fargo. Wells Fargo provided a loan
estimate that quoted an interest rate of 5.875% with a rate lock by which it
committed to close Muniz’s loan at the stated interest rate if the home
purchase and loan closed by August 7, 2017.
The rate lock agreement stated:
“This pricing is valid until the Expiration Date of Rate Lock shown above. If [the] loan does not close and funds [are not] disbursed on or before the expiration date, your loan will be re-priced and this may result in pricing increases. However, at the option of [Wells Fargo], you may be permitted to keep your rate the same by paying an extension fee to extend the rate lock.”
Muniz claimed that he diligently provided all the information the
bank requested, but bank-caused delays bogged down the process. Sound familiar?
On August 8, 2017, the bank issued an updated closing disclosure
that included a $287.50 fee for “Borrower Paid Rate Lock Extension,” which
Muniz paid. He sued, asserting that Wells Fargo violated TILA by failing to
disclose it “would charge borrowers finance charges/fees to extend the rate
lock period in cases of bank-caused delay.” His complaint included a screenshot
of closing documents showing a $287.50 charge for “Rate Lock Extension” and
disclosing that “at the option of [Wells Fargo], you may be permitted to keep
your rate the same by paying an extension fee.”
The court dismissed the case: TILA required "nothing more," and the disclosure was consistent with language contained in CFPB sample forms, the use
of which sufficed to satisfy TILA’s disclosure requirements.
The court referred to the model “Credit Sale
Sample” form in Regulation Z Appendix H-10 as an example of Regulation Z
“requiring nothing more than numerical disclosures for ‘Finance Charge’ and
‘Total of Payments.’” By the way, the court might also have considered referring to the
model forms for mortgage loan disclosures, such as the Loan Estimate sample
form in Appendix H-24(B).
Jonathan Foxx
Chairman & Managing Director
Lenders Compliance Group
