When the LE was issued, the rate was not locked. At the time the borrower requested to lock, the rate was higher than disclosed on the initial LE. A Change of Circumstance was not processed so a revised LE was not issued within the 3-day requirement. Upon realizing a revised LE was not issued, a COC was requested to disclose the higher rate.

Borrower was told verbally what the rate was on the day he requested his interest rate to be locked. No formal rate lock agreement with the borrower was executed.

Are we required to honor the rate on the initial LE or can we provide a revised LE with the actual locked rate even with the timing violation?

If a written rate lock agreement was not executed between the lender and the consumer, then the rate was not locked - no matter what your procedures might say.

Under 1026.19 (e)(3)(iv)(D), if there is no rate lock agreement, is there a timing violation? Can we now issue a revised LE with the higher rate disclosed?

Must the rate lock be written?

1 - A rate lock is a contract, in this case between the borrower and the bank, in which they agree that the rate on the loan will be locked for an agreed period. It protects the borrower from an increase in rate during that period and protects the bank from a drop in rates during that same period. It must be a written and signed agreement between the parties.

2 - If there was no written rate lock, you don't have any need for a revised loan estimate. A change in rates is not a changed circumstance (please don't call it a change of circumstance). And if the rate increases between the time the loan estimate is issued and the closing takes place, it does not trigger a tolerance violation (interest is not a closing cost).