How do we fix this?

Instead of denying the application or issuing a counteroffer, the lender simply redisclosed the GFE when the loan product changed from secondary market to in-house. The change was not requested by the borrower, but was due to the loan not meeting the investor's guidelines. Origination charges increased from $675 to $2,000 and lender’s title insurance increased from $0 to $600. Techincally, the final GFE and HUD are in tolerance, but I believe we were wrong to increase those fees on a new GFE without a valid changed circumstance. The bank made the product change; the customer didn't request it. The loan closed months ago. Is this fixable?

The GFE issued without a qualified changed circumstance is invalid. You will have to use the last properly disclosed GFE for your comparison for tolerance violations.

Thanks, Dan. I have one follow up question. Since the borrower did not choose the title insurance company from our list of service providers, do we have to reimburse that fee since it's not subject to the 10% tolerance?

You got lucky and won't have to cure for the title insurance.
But you still need to show $0 in the GFE column on p3 of the HUD for the title insurance with $600 in the HUD column. Luckily, this will be in the Items that can Change section.

As for the Origination fee, you'll put $675 in the GFE column and $2000 in the HUD column. That will give you a difference of $1325 that you need to show as a CURE on p 1 of the HUD.

Send the corrected HUD and the check for $1325 to the borrower along with a brief letter of explanation that their HUD was incorrect at closing.

And yes, absolutely correct this even tho you're past the 30 days. This is definitely a case of better late than never. The 30 days is just a window that you can correct without repercussion. An examiner could still ding you for missing that window but you'll win points for doing it.

Then I'd go have a long chat with that LO....

Thank you for your help!

What if there was no reimbursement? Would you still redisclose?

Yes. The HUD must reflect the actual costs.

I have since discovered that the counteroffer was done verbally, and documentation in the loan file supports that the applicant accepted the counteroffer. Do I have a valid changed circumstance now?

Am I understanding correctly that if we issue a counteroffer due to the investor denying the application, once the applicant accepts it, we have a changed circumstance (borrower-requested change) and can change the affected fees, including origination charges?

Bump

If the original loan was denied and you make a counter-offer that is accepted, yes, it could be a change in circumstances.