Changed Circumstances: A Refresher
With interest rates at historic lows, many members are buying new homes or refinancing. Add in COVID-19 and the increase in technology, and many things may change during the transaction. Here’s a short refresher on changed circumstances and when a credit union can provide the member with revised disclosures.
Section 1026.19(e) requires a credit union to provide a good faith estimate of closing costs (the Loan Estimate, or LE). Section 1026.19(e)(3) states that an estimated closing cost disclosed is in good faith if the “charge paid by or imposed on the consumer does not exceed the amount originally disclosed under [the initial LE].” As explained in CFPB’s TILA-RESPA Integrated Disclosure rule Small entity compliance guide, “whether or not a Loan Estimate was made in good faith is determined by calculating the difference between the estimated charges originally provided in the Loan Estimate and the actual charges paid by or imposed on the consumer in the Closing Disclosure.”
Section 1026.19(e)(3)(iv) states that a credit union “may use a revised estimate of a charge instead of the estimate of the charge originally disclosed… if the revision is due to… [a] changed circumstance affecting settlement charges.” The regulation provides 4 types of changed circumstances, which if any occur will allow the credit union to send a revised loan estimate (LE) to reset tolerances:
1. Section 1026.19(e)(3)(iv)(A) would allow the credit union to provide a revised loan estimate when there is an increase in settlement charges when “information specific to the consumer or transaction that the creditor relied upon when providing the [initial LE] … was inaccurate or changed after the disclosures were provided.”
2. Section 1026.19(e)(3)(iv)(B) allows the credit union to send the member a revised LE to reset tolerances when there is a changed circumstance that “affected the consumer's creditworthiness or the value of the security for the loan.”
3. Section 1026.19(e)(3)(iv)(C) states that the credit union may provide a revised loan estimate when the member requests revisions to the credit terms that cause an estimated charge to increase. The regulation would allow the credit union to provide a revised LE to the member when the member requests a change.
4. Section 1026.19(e)(3)(iv)(D) states that a credit union is allowed to provide a revised loan estimate for interest rate dependent charges “no later than three business days after the date the interest rate is locked.”
Section 1026.19(e)(4) states that if a credit union is providing a revised estimate for the purpose of determining good faith, the credit union must provide the revised LE within three business days of receiving information about the change.
But what if the changed circumstance happens after underwriting, closer to the end of the transaction?
Section 1026.196(e)(4)(ii) explains that the member must receive any revised Loan Estimate “not later than four business days prior to consummation.” However, section 1026.19(e)(4) explains that the credit union may issue either a revised loan estimate or a closing disclosure within 3 days of “receiving information sufficient to establish that one of the reasons for revision applies.” The CFPB’s TILA-RESPA Small Entity Guide clarifies that a credit union “may use a Closing Disclosure (CD) or corrected Closing Disclosure to reset tolerances as well,” when a changed circumstance occurs after the initial LE is provided. The regulation would allow the credit union to reflect the change on the CD to reset tolerances, if provided to the member within three business days of the member’s change.