Breaking Down the TRID Fix: Rate Lock Revised LEs Are One and Done
How's 2018 treating you so far, credit union compliance world?
My year started out right. Last week, I contacted the CFPB through their Regulatory Inquiry website and got a call back same day. That's a response time that the NAFCU Regulatory Compliance Team can appreciate. And the informal answer from the Bureau: you don't have to do any extra work unless you want to. So I'm batting a thousand so far.
The Question: Rate Lock Revisions and the 2013 Preamble
Subsection 1026.19(e)(3)(iv) describes when a revised Loan Estimate can be used to reset tolerances. The subsection contains five paragraphs describing five sets of circumstances where a revised Loan Estimate can be issued and used to reset tolerance for good faith purposes. Four of these circumstances are permissive, meaning that a revised Loan Estimate can, but is not required to be, issued. In other words, if the credit union decides that reissuing the Loan Estimate is not worth the cost, it can chose not to, though it won't be able to reset tolerances due to the event.
One of the circumstances is not voluntary, it's required. That's paragraph 19(e)(3)(iv)(D). If the rate was not locked when the initial Loan Estimate was provided, and the applicant locks in the rate, a revised Loan Estimate is mandatory. The language of this paragraph is quite specific:
"(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." 12 C.F.R. § 1026.419(e)(3)(iv)(D) (Emphasis added).
Nothing in the regulation or the commentary directly addresses what happens when a rate lock agreement is entered into, the rate is locked, and then the lock expires. The 2013 preamble to original TRID referenced rate lock expiration, but only very briefly:
"Upon a review of the proposed rule text and commentary, the Bureau acknowledges that the requires redisclosure where a rate lock agreement does not exist. But the Bureau intended that §1026.19(e)(3)(iv)(D) only applies in situation where a rate lock agreement has been entered into between the creditor and borrower, or where such agreement has expired." 79 Fed. Reg. 79833 (Emphasis added).
But as you can see, paragraph 19(e)(3)(iv)(D) is pretty narrowly drawn. Reading a requirement into that paragraph to redisclose at the time a locked rate expires would be difficult to do.
The Answer: TRID Fix and Informal Guidance from the Bureau
In the TRID Fix amendments, the Bureau sought to clarify that the requirement to issue a revised disclosure under paragraph 19(e)(3)(iv)(D) would not apply repeatedly. In the preamble, the Bureau stated:
"When a revised Loan Estimate is provided as required by §1026.19(e)(3)(iv)(D), the rate lock information disclosed pursuant to §1026.37(a)(13)(i) must be updated to reflect the expiration date of the interest rate disclosed, regardless of any changes to the disclosed interest rate or interest rate-related charges. Once the interest rate is subject to a rate lock agreement, §1026.19(e)(3)(iv)(D) does not subsequently require the disclosure of a revised Loan Estimate." 82 Fed. Reg. 37682 (Emphasis added).
So, no revised Loan Estimate is triggered under paragraph 19(e)(3)(iv)(D) when the rate lock expires. A change in circumstances may exist allowing a revised Loan Estimate to be issued and used to reset tolerances under another paragraph in subsection 1026.19(e)(3)(iv), but that would be at the credit union's option.
However, we still wanted to check on another variable. What if a second rate lock agreement is entered into with the borrower regarding the same application? Would each rate lock agreement create a new obligation to issue a revised Loan Estimate each time the rate was locked?
The Bureau's informal guidance indicated that the answer was no. The Bureau stated that paragraph 19(e)(3)(iv)(D) would apply only once. If the rate is locked again or the rate expires again, the credit union may wish to issue a revised Loan Estimate for the borrower's information and to ensure clarity; or it may wish to issue a revised Loan Estimate under another paragraph in subsection 1026.19(e)(3)(iv) to reset tolerances; but it is not required to do so by the regulation.
Good to know!