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TRID: Must the rate lock be written?

In the last Compliance Action, there was a Rate Lock disclosure Q&A. My concern is not about the meat of the question, but about a comment regarding written rate lock agreements. It stated that the rate lock must be “written” to officially lock the rate per the TRID. I cannot find where TRID says that the rate lock must be written. Can you please point me to the section or other documentation requiring written rate locks? We are internally debating the discrepancy between TRID disclosures and the HOEPA/HCML issues related to setting the final rates.

In the rule’s preamble, in §1026.19(e)(3)(iv)(D) on interest rate dependent charges and its commentary, in §1026.37(a)(13) rate lock section and its commentary, the CFPB consistently refers to an executed agreement. “Executed” and enforceable legal documents typically must be in writing. Secondary market investors require written rate lock agreements. Since the regs stop short of specifying a “written agreement,” many have contacted the CFPB directly. Their attorneys have consistently upheld the CFPB’s interpretation that the agreement must be written. You hit on a TRID area begging for clarification! Let’s think this through by first recognizing the difference between a rate lock “understanding” and a legally enforceable written agreement. Second, because the regs were developed in silos, terminology is used differently in many sections and should not be treated as persuasive in another section. Third, a practical solution is always best unless it is clearly contradictory to the regulations.

A very old rule governing real estate transactions, the Statute of Frauds, requires any legally enforceable real estate agreement to be in writing. This principle was unfortunately a handy tool for predatory lenders to void written promises! Your verbal rate lock may not be legally enforceable, but the bank is free to honor its promise. But, in our opinion, the TRID rate lock block should not be checked without a written agreement. Now, let’s look at the second issue. Separate teams worked on different parts of the regulation in silos, occasionally staff inexperienced with real estate transactions. It appears that the rate lock issue was not effectively vetted against the HOEPA/ HCML rules. To resolve conflicts, look within each section and consider what the regulation intended to accomplish. Look to other sections for ideas and guidance, but consider that wording or issues in other sections may not be dispositive. Where does this leave us? As a practical matter, we must have a viable procedure that does not conflict with the regulations.

To achieve a practical solution, treat the non-enforceable rate lock as binding and use it for disclosure and other compliance purposes. Separately ensure compliance with the TRID regulations for indicating rate locks.

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First published on 05/16/2016

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