Sue Burt, Sr. Compliance Consulting Specialist
When it comes to issuing a Loan Estimate under the TILA-RESPA Integrated Disclosure (TRID) rule, lenders are generally bound by the fees and charges disclosed. Revisions are not permitted due to mistakes, miscalculations and underestimation of charges caught after the fact. That being said, the law does recognize that situations can arise beyond lender errors that cause the original loan estimate to become inaccurate. To address such situations, the TRID rule provides for a limited set of triggering events that warrant issuing a revised Loan Estimate for purposes of re-setting fees and good faith analysis.
The following article highlights when a Loan Estimate revision is permitted, the timing for providing such revisions, and a few compliance tips to consider regarding the revision process.
Under the TRID rule, lenders are held to a good faith standard in disclosing fees and charges on the Loan Estimate. This good faith standard is measured by comparing what is disclosed on the Loan Estimate with what the consumer actually pays at consummation. Absent some limited tolerance provisions, if the consumer pays more for a service at consummation than what was originally disclosed, the fee for that service would violate the good faith standard.
One way to avoid tolerance violations is to determine whether or not an increase in fees was triggered by an event specified in the TRID rule. The law sets out six events that justify a revised Loan Estimate for purposes of re-setting fees and performing one's good-faith analysis. Those six events include:
Before considering each of these, it is important to review the definition of “changed circumstance” as this term impacts the first two triggering events.
The TRID rule contains a very specific definition of the phrase “changed circumstance” and it really comes down to one of three scenarios. First are those extraordinary events beyond anyone’s control or other unexpected event that is specific to the consumer or the transaction – this would include a war or some other type of natural disaster. A changed circumstance may also involve specific information you relied upon in completing the Loan Estimate that later becomes inaccurate or changes. Finally, a changed circumstance may be the discovery of new information specific to the consumer or transaction that the lender did not rely on when providing the original disclosures.
Let’s now review the six revised Loan Estimate triggering events in more detail.
1. Changed Circumstances Affecting Settlement Charges
If a changed circumstance causes an estimated settlement charge to increase beyond the tolerance variations set out in the TRID rule, the lender can issue a revised loan estimate as it relates to that charge.
Example: Assume a transaction includes a $200 estimated appraisal fee that will be paid to an affiliated appraiser. This fee is subject to zero tolerance. At the time of application, information indicated that the subject property was a single-family dwelling. Upon arrival at the subject property, the appraiser discovers that the property is actually a single-family dwelling located on a farm. A different schedule of appraisal fees applies to residences located on farms. A changed circumstance has occurred (i.e., information provided by the consumer is found to be inaccurate after the Loan Estimate was provided) which caused an increase in the cost of the appraisal to $400. A revised Loan Estimate may be issued reflecting the increased appraisal fee of $400. By issuing a revised Loan Estimate, the $400 disclosed appraisal fee will now be compared to the $400 appraisal fee paid at consummation. For good-faith purposes, the appraisal fee has been re-set from $200 to $400 and there is no tolerance violation. Had a revised Loan Estimate not been issued, the $200 appraisal fee would have been compared to the $400 fee paid at consummation, a tolerance violation would have occurred and a cure via a lender credit would be required. (See 12 CFR 1026.19(e)(3)(iv)(A) – Comment 1)
Note that if one is revising a loan estimate due to increases in a 10% tolerance item, the item increased must be added to the other fees in the 10% category. A revised loan estimate, for good faith purposes, would only be allowed if the cumulative tolerance increased by more than 10%. Even though a fee increase may be due to a changed circumstance, a revised loan estimate can only be issued if the change also causes an increase beyond the permissible tolerance levels.
2. Changed Circumstances Affecting Eligibility or the Value of Loan Security
A second event that would trigger a revised LE for good-faith purposes involves consumer eligibility because a changed circumstance affected their creditworthiness or the value of the security for the loan.
Example: Assume that, prior to providing the Loan Estimate, the lender believed that the consumer was eligible for a loan program that did not require an appraisal and provide disclosures which do not include an estimated charge for an appraisal. During underwriting it is discovered that the consumer was delinquent on mortgage loan payments in the past, making the consumer ineligible for the loan program originally identified on the estimated disclosures. However, the consumer remains eligible for a different program that requires an appraisal. If the lender provides revised disclosures reflecting the new program and include the appraisal fee, then the actual appraisal fee paid at closing will be compared to the appraisal fee included in the revised disclosures for good faith purposes. (See 12 CFR 1026.19(e)(3)(iv)(B) – Comment 1)
3. Consumer Requested Revisions
A third event that would justify a revised Loan Estimate for good faith purposes involves consumer-requested changes. If the requested change impacts credit terms or settlement and causes an estimated charge to increase, a revised Loan Estimate may be issued.
Example: Assume that the consumer decides to grant a power of attorney authorizing a family member to consummate the transaction on the consumer's behalf after the Loan Estimate has been provided. Recording fees are now increased to record the power of attorney. If the lender provides a revised loan estimate reflecting the fee to record the power of attorney, then the charges at closing will be compared to the revised charges for good-faith purposes. (See 12 CFR 1026.19(e)(3)(iv)(C) – Comment 1)
4. Interest Rate Locks
If the interest rate is not locked when the Loan Estimate is provided, the lender may issue a revised loan estimate once that rate is locked. The revised loan estimate should be updated to reflect the revised interest rate, as well as any changes to points disclosed under Origination Fees, lender credits, and any other interest rate dependent charges and terms.
5. Loan Estimate Expiration
Another justification for issuing a revised Loan Estimate is when the intent to proceed is more than 10 business days after the Loan Estimate has been delivered.
Example: Assume the lender includes a $500 underwriting fee on the Loan Estimate and delivers the Loan Estimate on a Monday. If the consumer indicates intent to proceed 11 business days later, the lender can issue a revised Loan Estimate that discloses any increases in fees from the time of the original Loan Estimate to the time of the revised Loan Estimate. (See 12 CFR 1026.19(e)(3)(iv)(E)-Comment 1)
6. Construction Loan Settlement Delay
In transactions involving new construction, where one reasonably expects that settlement will occur more than 60 days after the Loan Estimate was provided, the lender may provide revised disclosures to the consumer if the original disclosures stated clearly and conspicuously that at any time prior to 60 days before consummation, the lender may issue revised disclosures. If no such statement is provided, the lender may not issue revised disclosures.
The TRID rule requires that the revised Loan Estimate be provided within three business days of receiving information supporting the need to revise. “Business day” is defined as any day the lender's offices are open for substantially all business functions. Typically, this comes down to determining whether or not Saturday is a business day for one's institution. This window is a very short time frame and does require lenders to be on the alert for any changes that might impact the original Loan Estimate. Note that with a revised Loan Estimate, there is no requirement to provide the revised document seven business days before consummation – that timing rule only applies to the original Loan Estimate. The one timing requirement to recognize is that a revised Loan Estimate cannot be provided on or after the date the Closing Disclosure is given.
Collect all application information before issuing a Loan Estimate. Revised Loan Estimates are not permitted simply because the lender failed to collect all six pieces of information required in the application prior to issuing the Loan Estimate. For example, the failure to obtain the property address prior to issuing the Loan Estimate cannot be used as a reason to issue a revision if that address is later collected and impacts fees.
Collect complete accurate application information. Lenders should consider sequencing the application information requests to have sufficient information to issue an accurate Loan Estimate the first time around. In fact, they may request information above and beyond the six items that make up the definition of an “application”. For example, they may want to collect the consumer’s mailing address or the product the consumer is interested in prior to collecting the sixth piece of regulatory application information. However, keep in mind, once the lender receives those six items, a Loan Estimate is triggered.
Also, recognize that it is important to collect as much information as possible from the consumer during the application stage so that the Loan Estimate disclosures are accurate. Remember, lender errors and oversights will not justify a revised loan. Put another way, a “bad” application is not a change in circumstances.
Only fees affected by a triggering event can be re-set. For good-faith purposes, only those fees impacted by the triggering event can be re-set. The triggering events are not a license to issue a completely revised Loan Estimate and address other changes not affected by the event being relied upon.
Courtesy loan estimate revisions. The law does not prohibit issuing updates to a Loan Estimate to reflect changes not based on one of the six triggering events. Many refer to these revisions as “‘courtesy” revised Loan Estimates. The purpose of such revisions is more customer service oriented in nature and intended to keep the consumer updated on fee changes to avoid surprises at consummation. However, courtesy Loan Estimate revisions cannot be used for purposes of re-setting fees to establish good faith.
Record retention. The TRID rule recordkeeping provisions require that documentation be maintained to support the reason for issuing a revised Loan Estimate. Presumably, examiners will look for this supporting documentation when they review loan files and see revised Loan Estimates. Lenders should keep records documenting the reason for revision, the original Loan Estimate and the revised Loan Estimate. This evidence of compliance should be retained for three years.
Manage Revisions. Lenders should implement some type of system to track and manage revised Loan Estimates. This will be important for purposes of conducting one's good-faith analyses. It’s also important for purposes of tracking multiple revisions and determining at what point fee increases exceed the 10% cumulative tolerance threshold.