We are currently offering certain transactions a percentage lender credit if they open a checking or savings account with our bank. The borrowers were originally going with Rural Development loan but we ended up having to switch loan programs. So with the change in loan program, the loan amount also had to be changed. Does this constitute a change circumstance and can we redisclose the lender credit as it is based off of loan amount?

From the preamble to TRID 2.0

The section-by-section analysis of § 1026.19(e)(3)(i) in the TILA-RESPA Final Rule stated that, with respect to whether a changed circumstance or borrower-requested change can apply to the revision of lender credits, the Bureau believes that a changed circumstance or borrower requested change can decrease such credits, provided that all of the requirements of § 1026.19(e)(3)(iv) are satisfied. 78 FR 79730, 79824 (Dec. 31, 2013).

And that, MRS8, is the best answer you are going to get on this topic. There just isn't great guidance on this. For this reason, many bankers take the conservative approach and never reduce a lender credit. Also, if your new program is through an investor, you might ask them what they expect.

We are working through some similar issues with regard to Lender Credits.
Some of our LO's are sending out initial LE's (UNLOCKED) with a lender credit that is tied to a rate lock agreement (that is in the package). They are then processing a COC for "Rate Lock", issuing a revised LE with a new Rate Lock agreement. What we are seeing is that often times the rate has changed so the LC will increase/decrease with that new rate lock.
Adam & Randy in your opinion is this something that you would view as acceptable under the regulation or would you consider it a tolerance issue if the LC decreases from the original LE?

We also have seen this same situation happen where the LC is clearly NOT tied to a rate lock but they have randomly chosen to decrease it. In that instance we flag it in our audit as a tolerance violation.

Great question. To be clear, the vast majority of the industry does not permit a lender credit to decrease as the only thing written about this is what Randy quoted in both the preamble to the TRID original rule and the 2017 amendments. That said, the referenced prefatory text is clear that the CFPB believes that a changed circumstance or borrower requested change can reduce a lender credit.

The way I view this is that they are referring to a fee that is directly tied to the changed circumstance, so I agree with you that the change clearly NOT tied to a rate lock is a tolerance violation. Pending the facts and circumstances of the fee change relating to the rate lock (which could be a big variable), I'm in the camp that a decrease is technically permissible with proper documentation. That said, my management stance is to (typically) take the conservative approach and not permit it as once you do, the potential liability associated with refunds could get out of control.

Also, if your loan is a secondary market loan, it is very likely your investor won't let you decrease a lender credit. In regards to an increase of a lender credit, I see no issues with doing this for any reason as it benefits the customer.

I don't really understand your process - but, if you are issuing an LE with an unlocked rate with a general lender credit, that general lender credit is not interest rate dependent and cannot be lowered.

Which is exactly why I said "pending the facts and circumstances of the fee change relating to the rate lock (which could be a big variable)..."

I too am confused on what the process is and how the fee would be interest rate dependent.

Thank you both. This was exactly the purpose for my question. I have never seen this before at another institution. Sorry for the confusion on the process explanation though. I do believe we are in agreement.
My understanding of their process is that the LE goes out unlocked with a LC listed on the LE...the LO is also sending a "proposed" lock agreement in their initial package.
The LO is trying to justify the lowering of a LC on the revised LE with a "COC for Rate Lock". I do not believe this is a valid COC that would constitute lowering the Lender Credit as that initial LE was not locked and the LC was not tied to any rate lock.

I think that pretty well suns it up from what I see.