For years now, I have been advocating that there is only one reason why a revised Loan Estimate must absolutely be issued: when an initially floating rate is subsequently locked.
Sure, there are other reasons a financial institution can issue a revised loan estimate, such as when there is a valid changed circumstance, but the only time a revised Loan Estimate is absolutely required is when an initially floating rate is subsequently locked.
While this reason for a revised loan estimate may seem simple, there are actually some questions that arise with the requirement to provide a revised Loan Estimate from a rate lock. For example, you may be asking one of the following questions:
Is a written rate lock agreement required for the revised Loan Estimate trigger?
Is a revised Loan Estimate required after a rate expiration or for a rate extension?
Is a revised Loan Estimate required when a rate is locked after a Closing Disclosure has been issued?
Is a revised Closing Disclosure required when a rate is locked after a Closing Disclosure has been issued?
Revised Loan Estimate for a Written Rate Lock Agreement
The first question I want to explore is how a formal written rate lock agreement relates to a revised loan estimate. In the 2017 TRID Final Rule, known as TRID 2.0, the CFPB acknowledged that several commenters had asked for clarification in relation to a new comment that they had proposed. Specifically, the commenters believed that a revised Loan Estimate should not be required when an interest rate was set according to a written rate lock agreement, but a written rate lock agreement - at the same terms and charges - was obtained.
In other words, the rules were clear that a revised Loan Estimate was required when a rate was initially float and subsequently locked, but some questioned whether a revised LE was actually required if a rate was initially set, but just not set according to a written rate lock agreement meaning that nothing (such as the terms and fees) changed when the written rate lock agreement was finally executed.
In the 2017 TRID Final Rule, the CFPB clarified that that they do not consider a rate to be locked unless it is locked according to a formal rate lock agreement. Therefore, the CFPB clarified that a revised Loan Estimate is required when a formal rate lock agreement is executed between the borrower and lender if the rate on the initial Loan Estimate was not subject to a rate lock agreement, even if the terms and charged that were initially disclosed did not change with the formal rate lock agreement.
The CFPB explained that they felt that, without a rate lock agreement, the terms and charges of the loan that were disclosed on the initial LE are still likely to change as the rate was not technically locked. Therefore, a financial institution must provide a revised Loan Estimate with updated rate lock information disclosing the expiration date of the interest rate disclosed, regardless of any changes to the disclosed interest rate or interest rate-related charges.
Revised Loan Estimates for Rate Extensions
Now that we have discussed how a written rate lock agreement relates to a revised loan estimate, the next thing to consider is what happens when that already locked-in rate expires or is extended. In other words, our question now becomes this: Is a revised Loan Estimate required when a rate expires and is subsequently relocked or extended?
Upon first reading the TRID rule for a revised Loan Estimates relating to rate locks, it might appear that a revised Loan Estimate is required any time a rate is locked. The reason for this is that the actual rule is not very clear on this:
“The points or lender credits change because the interest rate was not locked when the disclosures required under paragraph (e)(1)(i) of this section were provided. No 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 (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.”
As you can see, the statement of “no later than three business days after the date the interest rate is locked, the creditor shall provide a revised version…” seems to state that a revised Loan Estimate is required any time a rate is locked. If we look a bit deeper into this rule, however, we will find that this isn’t really the case. Specifically, the first sentence of the rule references the disclosures required under paragraph (e)(1)(i) as being the trigger for the revised Loan Estimate. When we take a close look at this, paragraph (e)(1)(i) is the section that requires the initial Loan Estimate, not the section that requires a revised Loan Estimate which is paragraph (e)(4). In other words, this rule indirectly tells us that a revised Loan Estimate due to a rate lock is only required when the initial LE was not locked.
Unfortunately, neither the rule nor the commentary specifically address what happens when a rate that was locked is extended or expires and is subsequently again locked. That said, the CFPB has provided guidance on this topic in the TRID Small Entity Compliance Guide.
Specifically, section 8.8 of the TRID Small Entity Compliance Guide is clear that the requirement to issue a revised Loan Estimate only applies once. In other words, once the interest rate is subject to a rate lock agreement, “the creditor is not required to provide a revised Loan Estimate again for rate lock agreement extensions or new agreements, so long as there are no changes to the charges or other terms.”
Revised Loan Estimate After a Closing Disclosure Has Been Issued
The next thing to consider when discussing how rate lock agreements affect redisclosures is to understand how the rules apply when a Closing Disclosure has already been issued. In other words, is a revised Loan Estimate required when a rate that was initially floating is locked in via a rate lock agreement after a Closing Disclosure has been issued?
To answer this question, we can look to 1026.19(e)(4)(ii) as the CFPB explains that a creditor is prohibited from issuing a revised Loan Estimate once a Closing Disclosure has been provided:
“(ii) Relationship between revised Loan Estimates and Closing Disclosures.The creditor shall not provide a revised version of the disclosures required under paragraph (e)(1)(i) of this section on or after the date on which the creditor provides the disclosures required under paragraph (f)(1)(i) of this section.”
While this text isn’t as clear as it could be due to the citations referencing the LE and CD, the preamble to the 2017 TRID amendments makes this even more clear as the CFPB states the following:
“Section 1026.19(e)(4)(ii) prohibits a creditor from providing a revised Loan Estimate on or after the date on which the creditor provides the Closing Disclosure.”
In addition, TRID 2.0 added comment 19(3)(iv)(D)-2 to clarify that a creditor is not permitted to provide a revised Loan Estimate on or after the date on which the creditor provides the Closing Disclosure, even if the interest rate is locked on or after the date on which the creditor provides the Closing Disclosure:
“2. After the Closing Disclosure is provided. Under § 1026.19(e)(3)(iv)(D), no later than three business days after the date the interest rate is locked, the creditor must provide to the consumer a revised version of the Loan Estimate as required by § 1026.19(e)(1)(i). Section 1026.19(e)(4)(ii) prohibits a creditor from providing a revised version of the Loan Estimate as required by § 1026.19(e)(1)(i) on or after the date on which the creditor provides the Closing Disclosure as required by § 1026.19(f)(1)(i).”
Revised Closing Disclosure when a Floating Rate is Locked
The final scenario to consider when discussing how rate lock agreements affect revised disclosures is issuing a revised Closing Disclosure after a Closing Disclosure has already been issued. As we already discussed, the rules prohibit a creditor from providing a revised Loan Estimate if a Closing Disclosure is already provided to the applicant. The result of this is that when an initially floating interest rate is locked after a Closing Disclosure has been provided to an applicant, the only option a creditor has to disclose this lock is through the issuance of a revised Closing Disclosure.
TRID 2.0, however, clarified that a revised Closing Disclosure is not required every time an initially floating rate is locked. In fact, the rules clarify that a revised Closing Disclosure is only required if the rate lock causes the Closing Disclosure to become inaccurate, which means that the APR is out of tolerance under Regulation Z.
This explanation is found in the second half of comment 19(3)(iv)(D)-2, which we previously discussed in regards to the prohibition of issuing a revised Loan Estimate after a Closing Disclosure had been provided:
“If the interest rate is locked on or after the date on which the creditor provides the Closing Disclosure and the Closing Disclosure is inaccurate as a result, then the creditor must provide the consumer a corrected Closing Disclosure, at or before consummation, reflecting any changed terms, pursuant to § 1026.19(f)(2). If the rate lock causes the Closing Disclosure to become inaccurate before consummation in a manner listed in § 1026.19(f)(2)(ii), the creditor must ensure that the consumer receives a corrected Closing Disclosure no later than three business days before consummation, as provided in that paragraph.”
Applicable Citations for Issuing Revised Estimates after a Rate Lock
The new commentary to 1026.19(d)(3)(iv)(D)(2) reads as follows:
“After the Closing Disclosure is provided. Under § 1026.19(e)(3)(iv)(D), no later than three business days after the date the interest rate is locked, the creditor must provide to the consumer a revised version of the Loan Estimate as required by § 1026.19(e)(1)(i). Section 1026.19(e)(4)(ii) prohibits a creditor from providing a revised version of the Loan Estimate as required by § 1026.19(e)(1)(i) on or after the date on which the creditor provides the Closing Disclosure as required by § 1026.19(f)(1)(i). If the interest rate is locked on or after the date on which the creditor provides the Closing Disclosure and the Closing Disclosure is inaccurate as a result, then the creditor must provide the consumer a corrected Closing Disclosure, at or before consummation, reflecting any changed terms, pursuant to § 1026.19(f)(2). If the rate lock causes the Closing Disclosure to become inaccurate before consummation in a manner listed in § 1026.19(f)(2)(ii), the creditor must ensure that the consumer receives a corrected Closing Disclosure no later than three business days before consummation, as provided in that paragraph.”
From the 2017 TRID Amendments (TRID 2.0):
To provide guidance to commenters that sought clarity on whether a corrected Closing Disclosure is required if the interest rate becomes subject to a rate lock agreement after the initial Closing Disclosure has been provided to the consumer, such a corrected Closing Disclosure is required only when the disclosures have become inaccurate, pursuant to § 1026.19(f)(2). Notably, information disclosed on the Loan Estimate under § 1026.37(a)(13) concerning the terms of the rate lock agreement are not required on the Closing Disclosure under § 1026.38, therefore a subsequent rate lock agreement by itself would not require a corrected Closing Disclosure unless the charges and terms become inaccurate.
From the preamble to the 2017 TRID Final Rule (TRID 2.0):
Commenters that expressed a need for clarification in relation to proposed new comment 19(e)(3)(iv)(D)-2 in effect argued that § 1026.19(e)(3)(iv)(D) should not require the disclosure of a revised Loan Estimate if the terms and charges disclosed have not changed. As noted above, § 1026.19(e)(3)(iv)(D) explicitly requires the creditor to provide a revised Loan Estimate when the initial Loan Estimate did not disclose an interest rate subject to a rate lock agreement, even if the terms and charges disclosed are the same. As noted in the 2012 TILA-RESPA Proposal, the disclosures on the initial Loan Estimate related to the interest rate should be able to fluctuate on subsequent Loan Estimates if the consumer's rate was not set on the initial Loan Estimate, but revised disclosures should be provided when the consumer's interest rate is later set. The Bureau's concern was, and continues to be, that, absent a rate lock agreement, the terms and charges of the loan as disclosed on the initial Loan Estimate are more likely to change, as the consumer would only be able to rely on the interest rate related charges and terms on the Loan Estimate when the rate has been locked. When a revised Loan Estimate is provided as required by § 1026.19(e)(3)(iv)(D), the rate lock information disclosed pursuant to § 1026.37(a)(13)(i) must be updated to reflect the expiration date of the interest rate disclosed, regardless of any changes to the disclosed interest rate or interest rate-related charges. Once the interest rate is subject to a rate lock agreement, § 1026.19(e)(3)(iv)(D) does not subsequently require the disclosure of a revised Loan Estimate.
From the CFPB TRID Small Entity Compliance Guide, section 8.8:
“The requirement to issue a revised Loan Estimate applies only once. Once the interest rate is subject to a rate lock agreement, the creditor is not required to provide a revised Loan Estimate again for rate lock agreement extensions or new agreements, so long as there are no changes to the charges or other terms. (§ 1026.19(e)(3)(iv)(D); Comment 19(e)(3)(iv)(D)-1)”
Full comment 19(3)(iv)(D)-2 states the following:
2. After the Closing Disclosure is provided. Under § 1026.19(e)(3)(iv)(D), no later than three business days after the date the interest rate is locked, the creditor must provide to the consumer a revised version of the Loan Estimate as required by § 1026.19(e)(1)(i). Section 1026.19(e)(4)(ii) prohibits a creditor from providing a revised version of the Loan Estimate as required by § 1026.19(e)(1)(i) on or after the date on which the creditor provides the Closing Disclosure as required by § 1026.19(f)(1)(i). If the interest rate is locked on or after the date on which the creditor provides the Closing Disclosure and the Closing Disclosure is inaccurate as a result, then the creditor must provide the consumer a corrected Closing Disclosure, at or before consummation, reflecting any changed terms, pursuant to § 1026.19(f)(2). If the rate lock causes the Closing Disclosure to become inaccurate before consummation in a manner listed in § 1026.19(f)(2)(ii), the creditor must ensure that the consumer receives a corrected Closing Disclosure no later than three business days before consummation, as provided in that paragraph.
