We are running a mortgage loan promo currently and only new loans qualify - no refinances. An applicant does not qualify for the promo rate, so we disclose on the LE the rate based on internal rate matrix. During the process, borrowers wanted to increase loan amount, so we provide a change in circumstance LE, but the lender accidentally quoted them at the promo rate. We have NOT issued a CD yet.

Can we do another change in circumstance to increase the rate to the correct one or are we stuck honoring the lower rate?

A change in the interest rate is not a changed circumstance whether you made an error or not. You issued a Loan Estimate not based on good faith. How you choose to handle this would be a business decision based on UDAAP and bait and switch concerns.

Do you do rate lock agreements? If so, then you can fix it when you do the rate lock redisclosure.

That doesn't absolve the lender of the error, but it would get the borrower the correct rate information. This isn't a tolerance violation issue, but it is a Reg Z violation when you disclose the wrong pricing. So I go back to Randy Carey's caveat two posts above.

My comment was based on the statement by the OP that the LO 'quoted' the wrong rate.
I also agree that nothing will absolve the lender of the error.
But if the LE given shows as not locked, then wouldn't getting a rate lock agreement signed by the borrower and then giving the correct redisclosure fix the problem?
If the LE shows the rate as locked, then I agree that there's nothing the bank can or should do to try to correct it.

The error on the initial LE can't be "fixed," because the wrong rate was disclosed. That is a Reg Z violation.

I agree that if the consumer and lender subsequently enter into a rate lock agreement and a revised LE is timely issued with the new rate, points, APR, payments, prepaid interest, etc. -- all related to the rate lock -- the new rate, points, etc., become the basis for the loan for tolerance purposes under 1026.19(e)(3) for those items. But it does not eliminate the fact that the first LE included disclosure violations.

That's different from revised closing disclosures under 1026.19(f)(2)(iii) (Changes due to events occurring after consummation) or 1026.19(f)(2)(iv) (Changes due to clerical errors), where inaccurate disclosures are correctible and no violation occurs if the revised disclosures are correct and timely.