The Locked Rate That Wasn't Disclosed
On March 3, loan originator Dana takes a phone application from Marcus for a $340,000 refinance of his primary residence. Dana quotes a 6.25% rate and says she is 'locking it in today.' Marcus pays no fee that day. On March 4, Dana emails a Loan Estimate showing 6.25% with a rate-lock disclosure stating the lock expires June 1. Marcus signs and returns it March 6. On April 20, the investor's pricing worsens; Dana's processor reissues a revised Loan Estimate at 6.50%, noting 'lock expired.' Marcus calls Dana insisting his rate was locked March 3. Dana checks: no lock confirmation was ever issued to Marcus before the March 4 Loan Estimate, and the lock desk has no record of a March 3 lock request.
1. Legally, when did Marcus's rate lock take effect, and what is the significance of the March 4 Loan Estimate?
Read the worked answer
Under Regulation Z (12 CFR 1026.37(a)(13) and 1026.19), a rate is not locked until the creditor and consumer agree to a rate lock. The agreement must be in writing and reflected on the Loan Estimate. Dana's oral statement on March 3 is not a lock because no written confirmation was provided and no lock was placed with the lock desk.
The lock became effective when the March 4 Loan Estimate - showing the rate, the lock expiration of June 1, and the required rate-lock disclosure - was provided and Marcus accepted it (returned March 6). The written LE controls over the earlier phone conversation.
Practical point: Dana's oral 'locked it in today' creates a potential UDAAP/communication risk even if no legal lock existed, because it misled the borrower. The fix is to never use lock language before a written lock confirmation exists.
2. If the June 1 expiration passes and the loan has not closed, what must the creditor do before charging a higher rate, and what happens to the April 20 revised Loan Estimate?
Read the worked answer
Once a rate lock expires, the creditor may only charge a higher rate if it provides a revised Loan Estimate reflecting the new rate and the changed lock terms, and delivers or places it in the mail no later than 3 business days after the date the lock expires (12 CFR 1026.19(e)(4)(ii)). The revised LE must reflect the new rate, new lock period, and any changed terms.
The April 20 revised LE at 6.50% is premature and defective if it was issued before the June 1 expiration and without a valid lock-expiration event - a creditor cannot reprice mid-lock absent a valid changed circumstance or lock expiration. Dana's processor's note 'lock expired' is factually wrong on April 20.
Correct sequence: (1) lock runs to June 1; (2) if not closed, issue revised LE within 3 business days after expiration; (3) only then can the higher rate be charged.
3. Marcus claims damages. Identify the specific disclosure failures and the most likely compliance exposure.
Read the worked answer
Failures:
- Oral lock misrepresentation (March 3) - no written lock confirmation; potential UDAAP under Dodd-Frank/Reg Z.
- Premature repricing (April 20) - revised LE issued before lock expiration and without a valid changed circumstance, violating 1026.19(e)(4).
- Inconsistent lock disclosure - the March 4 LE stated a June 1 expiration; the processor's 'lock expired' claim contradicts the controlling document.
Exposure: The borrower relied on a written LE with a June 1 lock. Even though no March 3 lock existed, the creditor's own written LE and the LO's oral statement create estoppel-type risk. Remedies include honoring the 6.25% rate, re-disclosing properly, and curing under 1026.19(f) tolerance rules if the loan closes. Internally, this is a training and QC failure: lock language must be prohibited until written confirmation is generated by the lock desk.