Compliance Blog

Summer is almost over, kids are returning to school, and for some of us, we are looking forward to, dare I say it: pumpkin spice everything! I may be getting a bit ahead of myself, but it does feel like the summer flew by. As kids get settled back into their school routine and refresh their memory on math, science and language arts, we are going to do the same by refreshing ourselves on everyone’s favorite topic, the TILA-RESPA Integrated Disclosure rule (TRID). Specifically, when a credit union can and must send a revised loan estimate (LE).

Before we get into all the TRID fun, here is a picture from last year of my daughter’s first day back to school.

The general rule in section 1026.19(a)(1) requires credit unions to provide a good faith loan estimate to applicants for mortgage transactions within three business days of receiving an application. But what happens when something changes during the loan process and fees increase? Section 1026.19(e)(3)(iv) allows a credit union to send a revised LE when this occurs, thereby resetting the fee tolerances. The revised LE, which allows for an increase of fees from the original LE beyond what is allowed within the tolerances, is only allowed when one of the reasons set forth in section 1026.19(e)(3)(iv)(A) through (F) occurs. It is important to note that a revised LE is not necessary, but can still be sent, where the amounts decrease or if the amounts increase but do not exceed tolerance requirements described in section 1026.19(e)(3)(i)-(iii).

According to section 1026.19(e)(3)(iv)(A), a credit union may send a revised loan estimate, when one of three “changed circumstance” occurs. A “changed circumstance” is described in this section as:

(1)    An extraordinary event beyond the control of any interested party or other unexpected event specific to the consumer or transaction;

(2)    Information specific to the consumer or transaction that the creditor relied upon when providing the disclosures required under paragraph (e)(1)(i) of this section and that was inaccurate or changed after the disclosures were provided; or

(3)    New information specific to the consumer or transaction that the creditor did not rely on when providing the original disclosures required under paragraph (e)(1)(i) of this section.

The commentary to this section provides examples to illustrate the scenarios above. An example of an unexpected event would be if the creditor provided an estimate of title insurance on the disclosures required under section 1026.19(e)(1)(i), but the title insurer goes out of business during underwriting.  Then this unexpected event specific to the transaction is a changed circumstance. An example of information specific to the consumer or transaction that the creditor relied upon would be if the creditor relied on the members reported annual income of $90,000, but during underwriting it is determined that their annual income is only $80,000. Then this inaccuracy in information relied upon is a changed circumstance. Lastly, an example of new information specific to the consumer or transaction that the creditor did not rely on is if the creditor relied upon the value of the property, but during underwriting a neighbor of the seller, upon learning of the impending sale of the property, files a claim contesting the boundary of the property to be sold. This new information specific to the transaction is a changed circumstance.

Another reason a credit union may send a revised loan estimate is when a changed circumstance affects eligibility. Specifically, section 1026.19(e)(3)(iv)(B) states:

“The consumer is ineligible for an estimated charge previously disclosed because a changed circumstance, as defined under paragraph (e)(3)(iv)(A) of this section, affected the consumer's creditworthiness or the value of the security for the loan.”

The commentary to this section provides an example of when a changed circumstance may affect eligibility. In this example, a creditor believed a consumer was eligible for a certain loan program (which did not require an appraisal), but later during underwriting discovered that the consumer was ineligible due to a delinquent mortgage payment. Yet, the credit union finds that the consumer is still eligible for a different program which requires an appraisal. As a result, the credit union may send a revised LE reflecting the changed circumstances.

A revised loan estimate is also provided when there are member-requested changes to the credit terms. Section 1026.19(e)(3)(iv)(C) maintains a revised LE is required when the “consumer requests revisions to the credit terms or the settlement that cause an estimated charge to increase.” This could occur in the event a member asks for a lower interest rate after the original LE was mailed and the member was previously locked into a higher interest rate. Based on their request, a credit union is allowed to send out a revised LE with an increase in fees.

Section 1026.19(e)(3)(iv)(D) does not give a credit union the option to provide a revised LE, but rather requires a credit union to provide a revised LE to a member. This section states:

“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.” (Emphasis added).

Based on the language above, if the interest rate on the original LE was not locked and the applicant at a later date locks in the rate, a revised LE must be sent out. This means that for all the other reasons described in paragraph (e)(3)(iv), a credit union is not required to reissue the LE but may voluntarily issue one. Please note that if a credit union decides not to reissue an LE for any reason (i.e., it isn’t worth the cost), it won't be able to reset the fee tolerances.

Sections 1026.19(e)(3)(iv)(E) and (F) describe two final reasons for when a credit union can issue a revised loan estimate with increased fees. Paragraph(e)(3)(iv)(E) occurs when “the consumer indicates an intent to proceed with the transaction more than 10 business days, or more than any additional number of days specified by the creditor before the offer expires…” The commentary to the paragraph states “no justification for the change to the original estimate other than the lapse of 10 business days” is required when sending the new LE.  Paragraph (e)(3)(iv)(F) allows a credit union to provide a revised LE when the transaction involves a new construction loan “where the creditor reasonably expects that settlement will occur more than 60 days after the disclosures” were originally provided.

Lastly, it is important to note that section 1026.19(e)(4)(ii) prohibits a credit union from providing a revised LE if the closing disclosure has already been provided.

Additional information can be found in the CFPB’s TILA-RESPA Integrated Disclosure Rule Small Entity Compliance Guide. If there are any additional questions, please do not hesitate to contact NAFCU’s compliance team at compliance@nafcu.org.

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