If a change to a loan (that is not requested by the borrower) qualifies as a changed circumstance, should it also be considered a counteroffer? We have a situation in which a borrower doesn't qualify for a loan program due to a qualification requirement, however we can do the loan by keeping it in our portfolio. A program change due to qualification requirements appear to be a changed circumstance, but I could also see how a counteroffer could be made. Do the two go hand in hand? One meeting RESPA requirements and the other Reg B. In this instance a counteroffer was made, but did it need to be because of the changed circumstance.

Changing loan products by the lender is never a qualified changed circumstance.

You will deny the loan as applied for with the counteroffer. If the applicant indicates they want to proceed with the counteroffer then that would be a applicant requested change allowing a new GFE to be issued at that time.

When there is a change to the loan terms, is it safe to say that it's only a changed circumstance if the borrower requests the change? It's a counteroffer if the bank will only proceed based on the borrower accepting a bank requested change?

Not necessarily. You might have a change because an appraisal came back lower than the applicant said the home was worth, or there credit was not as good as they said it was. But a change circumstance is not something you change on your own. Since the changed circumstance allows a new GFE with potential changes to fees you could not just say we are changing the terms and now the fees all change if everything came in just like the customer said it would.

Here is the definition of a changed circumstance:

Changed circumstances means:

(1)(i) Acts of God, war, disaster, or other emergency;

(ii) Information particular to the borrower or transaction that was relied on in providing the GFE and that changes or is found to be inaccurate after the GFE has been provided. This may include information about the credit quality of the borrower, the amount of the loan, the estimated value of the property, or any other information that was used in providing the GFE;

(iii) New information particular to the borrower or transaction that was not relied on in providing the GFE; or

(iv) Other circumstances that are particular to the borrower or transaction, including boundary disputes, the need for flood insurance, or environmental problems.

(2) Changed circumstances do not include:

(i) The borrower's name, the borrower's monthly income, the property address, an estimate of the value of the property, the mortgage loan amount sought, and any information contained in any credit report obtained by the loan originator prior to providing the GFE, unless the information changes or is found to be inaccurate after the GFE has been provided; or

(ii) Market price fluctuations by themselves.

When there is a change to the loan terms, is it safe to say that it's only a changed circumstance if the borrower requests the change?

Changing loan terms and loan programs are separate issues. If you are changing loan terms refer the to the information BankingNut posted. If you are changing loan programs - 2dnary market to in-house, fixed to variable, etc. - then that is not a changed circumstance and see my previous response.

So if you are far enough along in the process that we have already issued a GFE, we can still counteroffer if they don't qualify for secondary market, but do qualify for an in-house loan?

Sorry, Friday brain. Dan's earlier post here answered my question.

Is it possible that a situation could be considered a changed circumstance or a counteroffer? If the appraised value comes in lower than expected and the loan amount needs to be reduced, after reading the information above we could proceed as a changed circumstance. Couldn't it also be a counteroffer? If it is possible that it could be treated both ways, which is the best option?

With a change of information (low appraisal)that affects the terms of the loan, there is a change of circumstance. You can counter-offer at the same time. IMO

I like to try and handle the notification requirements and RESPA requirements separately.

For Reg. B's notification requirements, a counteroffer can be based on the loan terms if the customer applied for specific terms. If the customer just wanted a loan to buy a home, I would say that specific terms were not applied for, but you did disclose specific terms because you were required to by other disclosure requirements. You need to make this call. For my institution, if the loan was an "in-house" loan I would say no specific terms were applied for so no counteroffer. But on the secondary market your customers really do apply for specific terms.

Commentary to 202.2: 1. Terms of credit versus type of credit offered. When an applicant applies for credit and the creditor does not offer the credit terms requested by the applicant (for example, the interest rate, length of maturity, collateral, or amount of downpayment), a denial of the application for that reason is adverse action (unless the creditor makes a counteroffer that is accepted by the applicant) and the applicant is entitled to notification under §1002.9.

For the changed circumstance, I like my officers to give multiple GFEs so that the file will paint a clear picture of what happened. Thus, I would reissue a GFE. However, it is not likely that any fees will change. If a fee changed, and the fee did change because the borrower provided you bad information, then I think it is justifiable and I would document that information and move on. But like I said, I doubt any fees are really going to be effected, because an appraisal came back low.

The appraisal coming in lower is NOT in and of itself anything.
What you do with that information is what determines whether it will be used to counter-offer the original application and/or whether it needs to be considered a changed circumstance.
So yes, you could counter-offer if the appraisal coming in lower causes your response to the application to change.
The borrower's acceptance of the counter-offer is what will determine the need for issuance of a redisclosure.
Be sure you keep an eye on the timing clocks while you go through this process.

fwiw, I don't agree with BankingNut's redisclosing usage to document the file. imho, the redisclosure should benefit the applicant by giving them knowledge, not confuse them with tons of paper. We use a form to document the file if a valid CC occurs but we elect not to redisclose because it's not necessary to capture a fee increase.