Hi all, Question regarding lender credit reduction for an extension of an interest rate lock. Can a lender reduce a lender credit to extend the lock period? Example; rate lock expired 4.25.19, the closing date 4.28.19. The initial rate lock and Loan estimate reflect a lender credit of 2000.00 with 4.25 interest rate. The lock was extended through 4.29.19 at the same rate, but the lender credit was reduced to 1800.00.-- Since the lender credit was reduced based on an interest rate dependent charge, is this acceptable for interest rate extensions? If it is, is there a requirement that documentation confirms the delay was due to the borrower or outside of the lenders control? Thank you for any feedback

A fee to extend a lock agreement is not an interest rate dependent charge. You are not charging the borrower a fee to lower the rate. The fee is to extend the time you agree to hold the rate.

IMO you cannot reduce the lender credit.

Hi Dan,

Thank you for your feedback, this is of great help!

Follow up question please;

If the rate was not extended, the new rate would have been higher. Instead of extending the rate lock of 4.25 a new rate lock would have been issued at 4.375. If the lender documents the par rate for that day and the extension at the lower rate, would the lender credit reduction be permitted?

If the rate lock expires and the lender credit was part of the rate lock, then at all expires. With no rate lock, the loan goes back to a floating rate. If the lender and consumer then agree to continue with a new negotiated interest rate and lender credit, I am not sure why that would not be a valid changed circumstance.

Thank you, this seems reasonable.

Follow up please;

We are getting pushback on these rate lock expirations with a reduction in the lender credit due to the rate lock extension. We are being advised there is no valid CoC for a rate lock extension with a lender credit reduction. They are hanging their hat on the verbiage in CFPB 19(6)(3)(iv)(D). Stating the verbiage speaks to the initial rate lock and if one existed at the time of disclosure we must compare initial disclosure to the final CD- Claiming this does not address an extension of a rate lock. I think the verbiage which states " If the consumer enters into a rate lock agreement with the creditor after the disclosures required.." should cover an extension. In this situation, the lender credit was provided with the initial rate lock, upon expiration a new rate lock was issued with a lower lender credit.

Any additional thoughts on this?




CFPB

OK - here is my thoughts - maybe someone else can chime in.

I apply for a loan. I can get a loan at par for 5% or I can get a loan for 5.125% and the lender will provide me a $5,000 lender credit.

I choose to go with the 5.125% loan and sign a 90 day rate lock agreement with the lender and a revised LE is issued in three business days reflecting such.

90 days pass and the loan has not closed yet due to no fault of the lender. The people pushing back are telling you that the loan does not then revert back to par? That the lender is still legally obligated to give the borrower a $5,000 lender credit??

I don't think it works that way myself. If the borrower does not want a loan at current par and prefers to relock the loan at a current interest rate that involves a lender credit, then that new rate lock follows the same process. That is not an extension of the old rate lock, it would be a new rate lock as the terms (other than the expiration date) are changing.

I guess I need convincing otherwise. When a legal obligation documented through a written rate lock agreement between the consumer and lender expires - the loan reverts to the current par loan product and what ever interest rate or lender credit (if any) is currently being offered. This is not a general lender credit offered by the lender which I agree can never be reduced. It is a totally interest rate dependent charge.

Thank you.

90 days pass and the loan has not closed yet due to no fault of the lender. The people pushing back are telling you that the loan does not then revert back to par? That the lender is still legally obligated to give the borrower a $5,000 lender credit??


Yes that is what they are telling us. Once the lender has issued the credit it cannot be reduced because the interest rate lock expired. In their opinion the CFPB does not address a rate lock expiring and a re-lock in relation to a lender credit. If the lender added points for the re-lock instead of reducing the lender credit, they will accept that situation with a borrower signed discount point disclosure. ( Another disclosure I don't think is a requirement)

I again disagree, since the reduction of a lender credit is an increased fee to the borrower. Additionally, the lock extension does state "as evidenced by your signature below you ( the borrower) acknowledge you have been informed of the necessary fees to process your mortgage loan request" It also states the borrower has "requested the terms of the rate lock". The necessary revised disclosures were issued within the 3 business day timing requirement.

The push back provided some additional color, they are stating this could be viewed as a type of predatory lending, offering a lender credit to entice the borrower to use the lender and then reducing it down the road. But again, if the lock expires due to no fault of the lender, I don't understand how this would be predatory. I do think this is an interest rate dependent charge and should be permissible.

Very frustrating

I tend to side with the people giving the push back.

Did you relock the rate with a new executed lock agreement or did you extend/modify the existing lock agreement?

If you extended/modified the existing agreement then IMO you agreed to extend the terms of that agreement which included the lender credit. Just my 2 cents.

Thank you Dan.

I was thinking the extension/modification would be okay, since the modification piece would include the revised lender credit. From your opinion, it appears you would not agree the lender should be permitted to add discount points either, is this correct?

The pushback we have received would allow the addition of a discount point(s) if borrower(s) sign a discount point fee disclosure in addition to the new rate lock. I am having a hard time understanding the difference, since the end result is the same to the borrower.

I did go back and review one rate lock for the extension. It does not state extension or modification, simply a rate lock with a new expiration date and the updated fees.

If you relock the rate with a new agreement then I see no issue charging additional discount points for the new rate reduction. That fee would be rate dependent since it is being used to discount the rate.

To me the fee to extend the lock agreement is simply a fee you are charging to hold the rate an extra 3 or 4 days. I don't see that being a rate dependent charge. IOWs you are agreeing to extend the lock. You are not "re-locking" the rate. It may be a matter of semantics but I just don't see the extension being tide to reducing the rate. The rate is already reduced and you're extending the time of that reduction.

Again just my opinion.

Thanks again for your input