We issued a GFE to a customer with a rate of 4.50%/7 year balloon/25 year amortization. Our loan committee did not accept those terms. Instead they approved 4.10%/5 year balloon/25 year amortization. Am I bound to the terms offered in the first GFE, or is approval or acceptance of the bank a change circumstance situation.

You're doing a counter-offer. If the borrower accepts the terms of the counter-offer which is a valid cc, you can redisclose the GFE. (See Dan's post here for Guru confirmation.)

I disagree Truffle. This is not a counter-offer. They are not denying the applicant's request and then giving a different offer. The bank issued a GFE (which is supposed to be meaningful). The loan committee doesn't want to live by what THE BANK already offered. They can't counter-offer their own offer.

§1024.7(f) states "[i]the lender is obligated . . . to the terms and settlement charges disclosed on[i] the GFE" - unless there's a changed circumstance. The loan committee not accepting what was issued in the GFE is not a changed circumstance.

The GFE is not a commitment to make a loan, but the bank is obligated to live by what they say unless there's changed circumstances. This actually brings up a lot of questions to me. Why are GFE's issued if the bank isn't willing to back up what they say? How is the GFE issued before a loan decision is made? What good is the GFE if the loan committee can change the rate and terms already provided?

The intent is the borrower gets the GFE from the bank and then compares it to other offers. If you change what you disclosed, you defeat the whole purpose of the regulation.

Huh? I'm confused. It's been my understanding all along that the intent of the GFE is to tell the borrower the costs of getting the loan they APPLIED for. Banks react to an application by first giving a GFE that outlines the costs of the loan applied for.

Then intent to proceed must be received before the application proceeds to a loan decision so the shopping period is over.

Let me state that we don't have a loan committee here so I'm unfamiliar with how they work or when. My assumption was that loan committee was the equivalent of underwriting. Underwriting would never precede the issuance of a GFE, imho.

Just my two cents here....but perhaps an important part of this is whether the applicant was applying for a "7 year balloon" product OR just generically applying for a "home" (purchase, refi, equity, etc.) loan. IOW, the way i'm seeing this, it might matter a lot WHO supplied the 7 year balloon part that led to the disclosure of the GFE that way: the applicant or the bank. The way individual banks operate, their product offers (or lack thereof) could be important in this to my way of thinking.

ok but still there's no underwriting before a GFE, correct?

So no matter who put what on the application, and remembering the GFE is not a contract to lend, why couldn't the terms be changed at the time the loan is underwritten? (assuming Loan committee = underwriting AND applicant didn't qualify at terms applied for.)

Mostly curious and wanting to learn something here.

Interesting subject and one that's making me think.....wouldn't the question of whether it was a "valid changed circumstance" hinge on WHY the loan committee felt the need to counteroffer? If for credit-based reasons, it would seemingly fit as a CC.

So you're lowering the rate (was it locked at the higher already?) and lowering the balloon and keeping the am the same.

What, exactly changed that would warrant a COC or change the fees? This bank could do exactly what was described and so long as the fees didn't change (which they wouldn't) what would be the need for redisclosure?

ETA: NO, you are not bound to the TERMS offered...just the fees charged.

I guess what i'm getting at is: there must always be a valid CC for a revised GFE (and by association, a valid CC to deny the application), or else a bank could just re-issue GFEs because "oops, we didn't mean to quote that rate or that term". But if the GFE was issued with the idea of the applicant meeting a certain credit standard and they failed to meet it, then it would seem to be a valid CC and the revised GFE would be ok.

Yes, Joker...i think you hit the nail on the head. No need to re-disclose at all if no fees are changing.

We issued a GFE to a customer with a rate of 4.50%/7 year balloon/25 year amortization. Our loan committee did not accept those terms. Instead they approved 4.10%/5 year balloon/25 year amortization.

The GFE was, I assume, issued based on the product discussed between the applicant and loan officer.

For whatever reason the loan committee would not approve the applicant for those terms.

The loan officer tells the applicant we cannot do the loan as originally applied for for whatever reason (IOWs a denial). However if you want we can offer you the following terms under a different loan program/term (counter offer).

How is the applicant accepting (requesting) the new loan program/term (counter offer) not a changed circumstance?

I agree banks don't do full underwriting before a GFE, but I read the original post to allow latitude to the bank to issue a meaningless GFE and then the Loan Committee meets and potentially changes terms, rates, etc. In the example given, the rate went down, but does the bank believe they can change fees/terms/rates after a GFE is issued without underwriting the loan and encountering a changed circumstance?

Dan: I see your point and agree a denial/counter-offer could be offered. If accepted, that is a changed circumstance. It seemed more like a leap to me from what the OP stated.

I'm going to come back to this. What's the purpose of RESPA? To prevent bait and switch. The bank is not supposed to just throw out meaningless GFEs. I agree that a GFE is not a commitment to make a loan, but the bank is supposed to live by the terms and fees for 10 business days minimum.

RESPA also requires GFEs to be "meaningful". If the customer had received the GFE and said "we'll take it" before the loan committee met? How can the loan committee pull the deal off the table? If the bank had run verifications and found information provided by the applicant to not be true, I could see a denial/counter-offer possible, but not without that step.

If the bank is issuing meaningless GFEs and then countering with different terms, I think there's a big issue here.

Everyday we have applicants that once we give them the GFE they give us their intent to proceed (we'll take it) and at some point in time, once we run the underwriting, we will have the one applicant that does not qualify for the terms disclosed on the GFE.

Our choice are:

1. Out right deny the loan request, or
2. Explain to the applicant we can't approve the loan as applied for and offer them a different product or different terms that they do qualify for and if they accept the new product/terms proceed from there.

In the OP they stated they gave a GFE based on certain terms but once they got all their underwriting information and presented it for approval through their application process the approval body for whatever reason would not approve the terms applied for and countered with different terms. Based on the surface of the OP I don't see a "bait and switch" but a counteroffer of loan terms which happens everyday.


If the bank is issuing meaningless GFE's and then countering with different terms, I think there's a big issue here.

If GFEs are being issued in this manner just to get them out the door and there is a pattern of the bank countering different terms then I totally agree.

I understand what you're saying Dan and I think you understand me. I can understand your situation where you underwrite the loan and the applicant(s) don't qualify. That's different than what I'm referring to. I also see you agree with my comment about issuing meaningless GFE's and then counter-offering different terms.

The original post said:
We issued a GFE to a customer with a rate of 4.50%/7 year balloon/25 year amortization. Our loan committee did not accept those terms.
The OP did not say anything about getting more or different information than what was presented to the loan officer that issued the original GFE. It simply said the Loan Committee didn't accept the terms the LO and GFE stated. IF there was nothing different presented to the Loan Committee than what was presented to the customer through the GFE is bogus.

So the bottom line question is: What new information does the Loan Committee have that the Loan Officer didn't already have when the GFE was issued?

If nothing new, then you can't counter-offer & you can't issue a new GFE. You are bound by what the GFE says, if there's no new information. Otherwise, you are baiting and switching.

Piano Man, could you please define what your loan committee does and when? Are they actually underwriting the loan with full information that was, of course, not used by the LO when giving the original GFE? Without this information, we're really just stabbing in the dark.

Good question Truffle. We may all be assuming things. However, until we hear from Piano Man, let me ask:
Does anyone agree or not agree with my last statement? If nothing new, then you can't counter-offer & you can't issue a new GFE. You are bound by what the GFE says, if there's no new information. Otherwise, you are baiting and switching.

David I understand what you are saying, or at least trying to say, but at the time the GFE is issued most of the time it is issued on the information known at that time. That's why we have changed circumstances.

So if the person's credit, DTI, LTV, etc. verifies out then I would agree you would have no reason to change the terms, but if they do not then the bank is not bound by the terms of the GFE regardless if the decision is made 2 days after it was issued or 15 days.

I agree with you Dan.