We have a loan where we offered a lender credit. Then the loan amount was reduced so that the borrower would not exceed the cash-back limit. A revised LE was sent reducing the loan amount and also reducing the lender credit. Would this rise to the level of a valid changed circumstance that would allow us to decrease the lender credit?

How does the changed circumstance relate to the change in lender credit? The only time you can (potentially) reduce a lender credit is if it directly relates to the changed circumstance.

10. Can lender credits change?

Yes, but only in certain circumstances. Regulation Z does not limit a creditor’s ability to increase the amount of lender credits disclosed on the Loan Estimate. However, a decrease in the amount of the lender credits disclosed on the Loan Estimate can lead to a violation of the good faith disclosure standard under 12 CFR §1026.19(e)(3) (i.e., a tolerance violation). Lender credits may decrease only if there is an accompanying changed circumstance or other triggering event under 12 CFR §1026.19(e)(3)(iv), and the creditor provides the consumer with a revised estimate within three business days of receiving information sufficient to establish that the changed circumstance or other triggering event has occurred. 12 CFR §1026.19(e)(4).

The TRID Rule requires that all estimated closing costs that the consumer will pay be disclosed in good faith. Generally, an estimated closing cost is disclosed in good faith if the charge paid by or imposed on the consumer does not exceed the amount originally disclosed or is otherwise within applicable tolerance standards. 12 CFR §1026.19(e)(3).

The actual total amount of lender credits, whether specific or general (i.e., non-specific), provided by the creditor that is less than the estimated lender credits disclosed on the Loan Estimate is an increased charge to the consumer for purposes of determining good faith under the TRID Rule. Comment 19(e)(3)(i)-5. Specifically, the total amount of lender credits (specific and general) actually provided to the consumer is compared to the amount of the lender credits identified in Section J: Total Closing Costs on page 2 of the Loan Estimate. Comments 19(e)(3)(i)-5 and -6.

Essentially, lender credits are a negative charge to the consumer subject to the good faith requirements of the TRID Rule, and must be considered when determining whether disclosures were made in good faith and within applicable tolerance standards. For example, if the creditor discloses a $750 estimate for lender credits on the Loan Estimate, but only $500 of lender credits is actually provided to the consumer, the actual amount of lender credits provided is less than the estimated lender credits disclosed on the Loan Estimate, and is therefore, an increased charge to the consumer for purposes of determining good faith under 12 CFR §1026.19(e)(3)(i).

Specifically, absent a changed circumstance or other triggering event, the amount of the total specific and general lender credits actually provided to the consumer cannot be less than the amount of lender credits disclosed in Section J: Total Closing Costs on page 2 of the Loan Estimate (i.e., the total lender credits cannot decrease).

If a changed circumstance or other triggering event causes a lender credit to decrease, the creditor is not subject to a tolerance violation, assuming the other requirements for resetting tolerances are met. 12 CFR §1026.19(e)(3)(iv) and (e)(4); comment 19(e)(3)(i)-5; and the 2013 Final Rule, 78 Federal Register at 79824.

Not unless the rate was locked and it was an interest rate dependent credit.