There still seems to be some confusion, under the new TRID rules, over when a lender should issue a revised Closing Disclosure and what changes trigger a new “3 business day wait” before a loan may be consummated.
Under the new rules, the consumer must receive the Closing Disclosure at least 3 business prior to loan consummation. To be safe, I think most lenders will try to get this disclosure in the consumer’s hands three business days prior to a scheduled closing. Once the Closing Disclosure is issued, the Lender may no longer issue a Loan Estimate, regardless of any changes. So, what happens when things change?
Once the Closing Disclosure is issued, the lender may issue a revised/updated Closing Disclosure in the event of a bona fide change. This event results in a change to the information provided the consumer on the initial form.
These would be circumstances that the lender wouldn’t have known prior to the issuance of the disclosure like a last minute change requested or required by the consumer. In such cases, the lender may issue a new, revised Closing Disclosure to accurately reflect the change. In most cases, there is no need for a new 3 day wait after issuance of this revised disclosure.
Certain changes will trigger a new 3-day waiting period. These are:
- A change which renders the APR inaccurate;
- A loan product change causing the disclosed information to become inaccurate; or
- The addition of a prepayment penalty to the loan.
This is pretty straightforward, but there is some confusion surrounding a change in the APR. The rule says “inaccurate”.
Under TILA, an APR is considered inaccurate when it is off, either up or down, from what it should be based on the loan terms by more than .125% for a regular loan or .25% for an irregular loan. Most lenders will go by the .125% variance to be on the safe side when deciding if a new APR disclosure is needed.
So, if the APR is rendered “inaccurate”, by more than an eighth as the result of a change after the Closing Disclosure is issued, should a new Closing Disclosure be issued and the consumer given a new 3 business day waiting period?
The answer is Yes! But, that is ONLY when the APR increases, not if it goes down. Why?
Because TILA also notes that in the event of a mortgage transaction secured by a real property or dwelling, the APR is not considered to be “inaccurate” when it is determined, by the amount disclosed as the finance charge, which is greater than the amount that is required to be disclosed.
So, if the APR decreases, although a lender may need to issue an updated Closing Disclosure reflecting the correct APR and finance charge to report the changes that created the APR decrease, they need not wait another 3 days from issuance. As long as the prior disclosed APR was higher, as the result of a higher finance charge. It’s kind of the old “no harm; no foul” rule.
CFPB has clarified in a statement that there is no need for a new 3 day waiting period when the APR decreases (CFPB Says). They are silent in this release as to whether a revised Closing Disclosure should be issued.
The game keeps changing. Are you prepared?