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If the customer increases a loan request, do we need to modify the GFE?
Answers by Andy Zavoina and Richard Insley, BOL Gurus

Question: If a customer applies for a loan secured by residential property and we give them a good faith estimate and they come in a few days later requesting a loan for a larger amount, do we need to give them a revised good faith based on the larger amount?

Answer by Andy Zavoina
If the changes affect the APR by more than the tolerances allowed, yes. Aside from that, when the changes will alter what the borrower will have to pay at closing or significantly each month thereafter, it is a good idea to avoid surprises.

Section 226.17--General Disclosure Requirements 1. Change in rate or other terms. Redisclosure is required for changes that occur between the time disclosures are made and consummation if the annual percentage rate in the consummated transaction exceeds the limits prescribed in this section, even if the initial disclosures would be considered accurate under the tolerances in 226.18(d) or 226.22(a). To illustrate:

i. General. A. If disclosures are made in a regular transaction on July 1, the transaction is consummated on July 15, and the actual annual percentage rate varies by more than 1/8 of 1 percentage point from the disclosed annual percentage rate, the creditor must either redisclose the changed terms or furnish a complete set of new disclosures before consummation. Redisclosure is required even if the disclosures made on July 1 are based on estimates and marked as such.

B. In a regular transaction, if early disclosures are marked as estimates and the disclosed annual percentage rate is within 1/8 of 1 percentage point of the rate at consummation, the creditor need not redisclose the changed terms (including the annual percentage rate)...

iii. Mortgage loan. At the time TILA disclosures are prepared in July, the loan closing is scheduled for July 31 and the creditor does not plan to collect per-diem interest at consummation. Consummation actually occurs on August 5, and per-diem interest for the remainder of August is collected as a prepaid finance charge. Assuming there were no other changes requiring redisclosure, the creditor may rely on the disclosures prepared in July that were accurate when they were prepared. However, if the creditor prepares new disclosures in August that will be provided at consummation, the new disclosures must take into account the amount of the per-diem interest known to the creditor at that time.

Answer by Richard Insley
The GFE is a RESPA requirement and HUD's regs don't require redisclosure. As a practice, however, lenders are well-advised to update the GFE if the HUD-1/1A will reflect significant increases in previously disclosed values. "Sticker shock" is bad customer relations.

First published on 3/11/02

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