I thought I found the answer to my question but came across a thread that both confirmed and countered my understanding of 1026.19(e).

We have a closed end, no closing cost home equity loan. We do not lock the rate but we do honor the better of two rates: the rate at application or at consummation, whichever is lower. If the rate changes - up or down, regardless of the amount of change, meaning outside of the 1026.22 tolerance - we are not required to provide a revised Loan Estimate and we can rely on providing the changed rate on the Closing Disclosure and still be in compliance with 1026.19(e), correct??

Thank you for your input...

Correct. The same would be true if you didn't have your "lower of two rates" policy and simply used the current rate on the CloD and at closing.

Thank you for your confirmation John! I'll be recommending that we no longer send revised LEs in these cases.

Can you please help with this situation? The rate was locked and redisclosed on the LE, but later relocked at a lower rate when the CD was prepared. However, the new rate was not processed by the lock desk due to miscommunication prior to the CD going out. The APR decreased by exactly 1/8. Therefore, can we:
a. disclose the original locked rate on the CD and then close with the correct rate when the lock desk is able to process the rate? Or
b. since we were aware of the correct rate before the CD was sent out, we should not be sending out the CD with the old rate regardless of the fact that the change in the APR is by 1/8

You issue your CD based on the rate you are planning to use at loan closing. The CloD and any rate lock actually have no relationship. Honoring or not honoring your rate lock is a contractual issue. A new LE or CloD is not triggered by the lowering of an APR alone.

Let's see if I understand. You and the borrower executed a rate lock agreement and you issued an LE reflecting the rate lock. Later, you issued a closing disclosure (I'll use CloD) reflecting a rate that's lower by 1/8% but no new rate lock was executed. What's the problem? Assuming that you didn't also increase the discount points in this deal, you didn't need to issue a second rate lock to provide an APR that's lower than your earlier rate lock agreement. It's a unilateral change that's favorable to the other party. Why the concern over the fact that there was not a second rate lock in this deal?

The issue is that lockdesk did not update the rate in the system in time for the CD to be prepared, so the CD was reflecting the old rate.

If the original CD was issued with a higher rate than what the loan will close at, then a corrected CloD has to be delivered to the consumer at or before closing.

Ok, thank you. I just wasn't sure if it would be a good idea to issue a CD with incorrect information due to our error.

Didn't get that from reading your OP. Thanks.

First, I see that your lockdesk controls the rates you disclose. Since there's no requirement for a rate lock to be in place, there's room here to consider changing your process. But addressing the current situation ---

Since you have a loan that's been disclosed on a CloD at a rate that's apparently high by 1/8%, you should determine quickly whether the disclosed APR is inaccurate (under 1026.22) when compared with the actual APR at which you intend to close. If it is not inaccurate under 1026.22, you can close with a new CloD at consummation that reflects the correct APR, rate and payments, and there's no need to delay the closing.

If the disclosed APR is inaccurate under 1026.22, before you can close at the lower rate you have to provide a new CloD and ensure that the closing is rescheduled so that the CloD is received at least three business days before consummation. That waiting period may be waived by the consumer if the delay causes the consumer to have a bona fide personal financial emergency (see 1026.19(f)(1)(iv)).

Thanks for your help!

I have an similar situation at our bank where we are debating if what we are doing is correct. We provide the customer with the initial LE. When the loan is approved we use the interest rate that is in effect that day which most of the time can be higher than the initial LE. If we are a week or so out from providing the CD some of the officers process a new LE. They do not technically "lock" the rate by marking the box on the LE stating that the rate is locked. If the rate were "locked" we could treat it as a changed circumstance. Please advise.

If you don't execute a written rate lock agreement (lots of threads on this) you don't get to issue a revised LE because you "approved the loan". The rate you set when you approved the loan will be communicated via the CloD. The answer changes if a written rate lock agreement is in place when you set the rate, then you must issue a revised LE showing the locked rate.

Thank you. I have one loan officer stating that the higher rate at approval would cause the APR to be out of the tolerance level of 1/8% so we would have to re-disclose to customer the higher rate and higher payment amount. Was having trouble convincing her that this was not the case. The comment was also made that if we re-disclose the higher rate at approval on the LE without a written rate lock that we wouldn't be able to compare the CD to this LE but would compare to the initial LE. Is this true? Apparently this has happened a couple of times where a revised LE is prepared without the rate lock. Would this be out of compliance? Thank you for your guidance.

The rate and APY for closing appear on the closing disclosure the consumer receives at least three days before consummation. If that APY is or is later not accurate (as "accurate" is defined in 1026.22) (because there's a rate change after the CloD was issued), a new CloD has to be issued and their must be a three day waiting period following the consumer's receipt of the new CloD.

Someone needs to review the whole concept of comparing costs on the LE with final costs. The interest rate and APY are not subject to that comparison. They can change, and no revised LE is needed when they do change (unless a rate lock is involved).

I would not want to suggest that anything you've done is out of compliance without knowing the particulars of the specific loan application, the disclosures given, and the timing of those disclosures.

Thank you. I agree with what you are saying.