Re-disclosure of LE

If a customer has been issued their LE and earlies then decides they want escrow included does the LE need to be redisclosed? The customer would be receiving the Closing Disclosure prior to closing with all the escrow account information included.

Sorry if this had been posted in a similar thread.

Adding escrows at the request of the borrower is not a changed circumstance and would be handled on the next disclosure that you had to issue. Unless, of course, you wanted to give them a courtesy disclosure.

Thanks for your speedy reply! We thought we were correct but we've been going around and around with our auditor!

we've been going around and around with our auditor!

The only time a revised LE is mandated is when the rate is subsequently locked after the initial LE has been issued.

The regulation does not mandate a revised LE due to a changed circumstance, however if you do not do so within 3 business days of the change circumstance you cannot reset the tolerance baseline.

The LE was issued in good faith without the escrow. The CloD will include the escrow, but there won't be a tolerance violation because escrow deposit amounts estimated in good faith are covered by §1026.19(e)(3)(iii).

I do recommend a courtesy LE with the escrow payment included along with the estimated initial escrow deposit amount, to inform the borrower of what additional funds will be needed at the closing and the change to the monthly mortgage payment.

As noted by Randy, this isn't a changed circumstance.

Randy and John, while I agree that redisclosure is not mandated and that a courtesy one is recommended, I thought a borrower request was always a valid changed circumstance.
1026.19(e)(3)(iv) lists six reasons which permit redisclosure. #3 is Revisions requested by the consumer.

TR, a valid changed circumstance occurs if the change causes a fee to exceed its tolerance margin.

Just remember if a courtesy LE is issued then you must update ALL charges to the current dollar amount known at the time the courtesy LE is prepared. Also the courtesy LE does not reset the tolerance baseline.

Reread Dan's post - about three posts back. A rate lock is the only time you are required to re-issue a LE. Everything else is a courtesy or the lender is trying to reset their fee baselines for tolerance testing, if it is based on a valid changed circumstance. Escrow payments are not subject to tolerance testing, if made in good faith, at the time of issuing a disclosure. Issuing courtesy LEs is a business decision. Just one more opportunity to screw something up in my opinion.

TR, a valid changed circumstance occurs if the change causes a fee to exceed its tolerance margin.

Dan, I disagree with this statement. A valid changed circumstance is its own thing. Whether or not you redisclose is a result of it, not what makes it valid.

Valid Changed Circumstances can cause a fee to increase but they can also cause a fee to decrease. Ex: Loan Amount is lowered. The Valid CC is the borrower's request to lower the loan amount. No fees increased causing a fee to exceed it tolerance. But a Borrower's request is in and of itself a valid changed circumstance.

I think it's semantics really. Yes, a borrower's request to decrease the loan amount is a valid changed circumstance, but since lower loan amount cause lower and not higher fees, it's really a moot point. Yes, it's a valid changed circumstance, but no, you won't need to re-disclose because fees aren't going up. You can always issue informational LE's if you want.

Actually, I disagree. A borrower requested change that has the effect of lowering fees is not a "changed circumstance" as defined in the regulation.

19(e)(3)(iv)(A) Changed circumstance affecting settlement charges. Changed circumstances cause the estimated charges to increase or, in the case of estimated charges identified in paragraph (e)(3)(ii) of this section, cause the aggregate amount of such charges to increase by more than 10 percent.

Something that causes fees to decrease is not a changed circumstance and anything you do when that happens falls under an informational disclosure.

Yes, but then it goes on to define "changed circumstance", with one of those definitions being: "2) Information specific to the consumer or transaction that the creditor relied upon when providing the disclosures required under paragraph (e)(1)(i) of this section and that was inaccurate or changed after the disclosures were provided;"

So personally, i agree but disagree......i think a borrower requested change that results in fees going down would not qualify as a "changed circumstance affecting settlement charges", but would meet the definition of a "changed circumstance". So....as i said above...it just seems like semantics really. There's no reason to reset your tolerance baseline when fees are going down.

Interesting semantics on this discussion, but the bottom line for the OP is what Dan said: "The only time a revised LE is mandated is when the rate is subsequently locked after the initial LE has been issued."

Now, if you have a changed circumstance that increases fees and you want to adjust them, you can reissue the LE - or you can choose to not adjust your fees (taking a loss) and not send the LE. And, you can always issue a courtesy LE any time you want to update the customer of changes.

wrogers22, if you have been going round and round with an auditor, (it sounds like) they are wrong and I would ask them for a citation.

It is interesting.....Randy's post made me re-read that part of the regulation and i do think it's safe to say, based on the way the regulation reads, that you are NOT allowed to re-set your tolerance basis when the only affected fees attached to a changed circumstance are going DOWN. (Why you would want to is, of course, another story.)

If we want to get all technical here, only the changes in 19(e)(3)(iv)(A) and (B) are termed "changed circumstances." The borrower-requested change is not, nor is a change in rate-dependent charges, nor is the expiration of the loan estimate, or the delayed settlement date on a construction loan.

But I appreciate the fact that lenders generally lump all those reasons behind an allowable increase in a loan estimate cost under the heading of "changed circumstances."

And I also appreciate that "changed circumstance(s)" was used in this thread instead of "change of circumstance" or some other misnomer.

Tagging on to this thread -

First, for this discussion, please assume all disclosures are delivered and received on the same person (face-to-face meeting).

No formal rate lock agreements are executed (fought that battle and lost -grrr).
The rate was internally set on a date so that the third business day from the lock date (time frame for issuance of revised LE) would allow for a revised LE reflecting the rate lock to be provided four days prior to closing. (There are no interest rate dependent fees). The next day, a CD could be issued and closing would occur as planned.

Instead of the revised LE, a CD was issued four days prior to closing.

I believe the revised LE should have been issued followed by a CD the following day.

1029.19(3)(e)(iv)(D) Interest rate dependent charges. The points or lender credits change because the interest rate was not locked when the disclosures required under paragraph (e)(1)(i) of this section were provided. No later than three business days after the date the interest rate is locked, the creditor shall provide a revised version of the disclosures required under paragraph (e)(1)(i) of this section to the consumer with the revised interest rate, the points disclosed pursuant to § 1026.37(f)(1), lender credits, and any other interest rate dependent charges and terms.

Official Interpretation
19(e)(3)(iv)(D) Interest rate dependent charges.
1. Requirements. If the interest rate is not locked when the disclosures required by § 1026.19(e)(1)(i) are provided, then, no later than three business days after the date the interest rate is subsequently locked, § 1026.19(e)(3)(iv)(D) requires the creditor to provide a revised version of the disclosures required under § 1026.19(e)(1)(i) reflecting the revised interest rate, the points disclosed under § 1026.37(f)(1), lender credits, and any other interest rate dependent charges and terms.

I would love to hear others opinions. Thanks-

If the fact remains that "No formal rate lock agreements are executed ", then I do not understand what the question might be. If there is no formal rate lock, there are no disclosures triggered.

Interest is not a closing cost. A change in interest rate and APR (and odd-days' interest due to the changed interest rate) after the loan estimate is given is not a changed circumstance and does not create a tolerance violation. So, if a 6.25% rate was disclosed on the loan estimate, but the rate changed to 6.75% at the time the closing disclosure is issued, there is no need to have provided a revised loan estimate before providing the closing disclosure.

Should you be communicating with the borrower about the increased rate? Definitely. That is one of the reasons the closing disclosure must be received by the borrower at least three business days before closing -- it gives the borrower time to look it over and notice things like a changed interest rate and APR, etc., and ask questions (or back out of the deal). But a phone call is a better way to get this sort of information to the borrower (in addition to the required closing disclosure).

Thank you both -

I got hung up on the whole rate lock concept thinking of HMDA and the date the rate was set for the final time. Your comment was a reminder to stay in the correct lane when it comes to Regulation overlap.
If we actually did execute rate lock agreements with our borrowers, wouldn't the execution of the rate lock require a revised LE (as there was time in this situation). That was what I was trying to determine by the timing question.

Yes, if you actually execute a rate lock agreement with the consumer borrower, you would need to issue a revised LE within 3 business days. (Reference Reg Z §1026.19(e)(3)(iv)(D)). It would make sense to provide it when the rate lock is executed, if possible.

Thank you, John!