Our software system incorrectly applied the wrong interest rate for the GFE and early TIL.

Now that we've discovered the error, the lenders want to redisclose due to a Changed Circumstance under 3500.2(2)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 . . .

I am saying that we disclosed the rate and it was our error - we need to live with it.

Can anyone chime in?

You're right. What this section is talking about is information like the appraisal coming in lower than expected. An error on your part does not fit under this definition.

Lesson learned: proof before you deliver!

Since when does a GFE establish the fact that you can't change the rate on the loan? You would deliver a new early TIL.

If the lender has not entered into a lock agreement with the customer for a specific rate and time period, as shown in Important Dates, it can change.

Randy, I beg to differ, assuming that the op was talking about a locked rate. If they are, then they cannot redisclose the GFE because an error is not a valid changed circumstance. Likewise, there's nothing to base a new TIL on.

If they haven't locked the rate, they still can't redisclose now. But that's a moot point because when they do lock they HAVE to redisclose at the locked rate.

If they haven't locked the rate, they still can't redisclose now.

Why? As long as the consumer has not exercised a rate lock option I can change the rate right up to closing and I do not have to disclose a revised GFE once I set that rate and if it didn't put my APR out of tolerance I wouldn't have to disclose a revised ETIL either.

Let's take this one step further TR, what if the rate was 5% but the lender issued a GFE for 6% in error. Are you saying that the customer must close at the higher rate because the lender can't correct their error?

Basic premise of GFE is you cannot redisclose without a valid changed circumstance.
Whether the rate is locked or not, is the fact that the LO put the wrong rate on the GFE a valid changed circumstance that allows redisclosure?
No.
That's why I said Once the borrower locks the rate you must redisclose at which time the rate on the GFE is the closing rate.

Dan, I assume you're speaking to instances where you never truly lock the rate? If that's correct, I bow to your knowledge of those circumstances because we do not do it that way here.

As to what you do if you over diclose the rate on the final GFE, that's an error and I assume you would have to address it at time of preparing the closing docs. If it affeced the TIL, you'd have to redisclose properly and wait the proper number of days. Thankfully, the only part of the HUD that would be affected would be the daily interest which would both go down and is not a tolerance item.

If the consumer has not exercised a rate lock option and if the date in Line 1 has expired the rate is floating and the rate can be set right up to the preparation of the loan documents. Once I set the rate for closing I have no obligation to issue a revised GFE and if the rate did not affect my APR tolerance I have no obligation to issue a revised TIL.

The rate is not tied to same restrictions as the fees are for a changed circumstance. As long as the consumer has not exercised a rate lock option and the date in Line 1 has expired the rate can change at any time.

In all our discussions, Dan, I've never once recalled hearing 'the rate is not tied to the same restricions as the fees are for a changed circumstance.' I was operating under what I thought was the 'no valid CC/no redisclosure' rule.

This, however, has me stumped. which seems in direct contradiction to this.
But I've been confused on how you do things vs how we do them before so if you don't mind explaining, I'd appreciate it.

How do you "lock" a rate prior to the delivery of the initial GFE and an intent to proceed with the loan? This appears to be a situation where the cart is before the horse.

We've any number of files that have only one GFE in them.
Scenario that happens here regularly:
Applicant calls LO: 'I see you've got 3% today. I want that rate.'
LO says ok and takes app over phone and locks rate.
Original GFE is mailed with the locked rate being offered for the ten days. Intent to proceed form included with request for supporting documentation, etc.

TR, I know you and I have had a different opinion on this since the on set (partly due to you being a banker's bank and your process) so I'm not sure where my statements in this thread contradicts the one you linked.

The regulation requires you to issue a revised GFE when the borrower exercises a rate lock option, not when you set the rate for closing when the rate had been floating or when you lock the rate with your investor.

Unless the borrower exercises a rate lock option I have no regulatory requirement to issue a revised GFE.


Q: If a GFE has been provided and the interest rate has not been locked, can the loan originator provide a revised GFE when the borrower later locks the interest rate?
A: Yes, if a borrower locks the interest rate after the GFE has been issued, a revised GFE must be issued within 3 days of the interest rate lock reflecting the date that the interest rate lock is good through in Line 1 and "N/A" in Line 4 of the "Important dates" section of the GFE. Any interest rate-dependent charges (Block 2, Line A and Block 10 on the GFE) and terms that changed must also be updated on the revised GFE.

From this the rate was locked from the beginning and the initial GFE reflects that lock. Once the 10 days expires the rate is no longer "guaranteed" and unless the borrower exercises another rate lock option or extends the current one there is no requirement to issue a revised GFE if the rate at closing is different than the one that expired.

Dan, my mind never put the emphasis on THE BORROWER part of the FAQ about locking the rate. That's why I asked for the clarification on your process.

Additionally, I try very hard NOT to just look at regs through my own bank's way of doing things. It's important that I be able to answer our client banks from their perspective too. So I truly appreciate whenever you take the time to explain issues from the front line to me.