Rate Lock, Revised Loan Estimates, and Tolerance Math
On Monday, March 3, a mortgage broker takes a purchase application for a $420,000 primary residence with 20% down and a 30-year fixed rate. The initial Loan Estimate shows $1,150 origination, $475 appraisal, $1,800 title, and no discount points. On March 10 the borrower locks; the lender adds a 0.5 point charge of $2,100. A revised Loan Estimate issued March 12 reflects the points. On March 18 the title company raises its fee to $2,150 because a new survey is required, and on March 20 the appraiser invoices $525, $50 above the original estimate. No revised estimate is issued for either change. The Closing Disclosure is issued March 28 for an April 1 consummation and shows the $2,100 points, $525 appraisal, and $2,150 title. No other fees changed. The loan is not high-cost and is subject to TRID. The broker wants to know whether it can close on April 1 and whether any refund is owed.
1. Did each changed fee require a revised Loan Estimate, and were the revised estimates timely? Explain the rule for rate locks and for the later appraisal increase.
Read the worked answer
A revised Loan Estimate is required when a valid changed circumstance affects a fee or term, and it must be delivered or placed in the mail within three business days of receiving information sufficient to establish the change.
- Rate lock: Locking the rate is a changed circumstance that can reset the points disclosed. The March 12 revised estimate was issued within three business days of the March 10 lock, so the $2,100 point charge may be treated as timely disclosed.
- Title increase: The survey requirement is a changed circumstance if it was not reasonably known at application. Because the fee rose to $2,150 on March 18 and no revised estimate followed, the last valid estimate remains $1,800.
- Appraisal increase: The $525 invoice is also a changed circumstance, but the servicer must issue a revised estimate within three business days of learning of it. None was issued, so the $475 estimate remains the baseline.
The failure to revise the estimate for title and appraisal does not necessarily make the loan invalid, but it limits the lender's ability to use the higher fees for tolerance purposes.
2. Calculate the tolerance exposure by category. Identify any violation and the amount that must be refunded or cured.
Read the worked answer
Points and origination charges are in the zero-tolerance category. Origination stayed at $1,150. Points rose from $0 to $2,100, but because the rate-lock revision was timely, the points are measured against the revised estimate and no zero-tolerance violation arises from that item.
Title and appraisal fees are in the 10% cumulative category. Using the last valid estimates:
- Baseline: $1,800 title + $475 appraisal = $2,275
- 10% tolerance: $227.50
- Actual: $2,150 title + $525 appraisal = $2,675
- Total increase: $400
- Excess over tolerance: $400 - $227.50 = $172.50
There is a $172.50 tolerance violation. The lender must refund that amount to the borrower within 60 days of consummation, with an explanation, unless another permissible cure applies. A post-closing revised estimate cannot be used to erase the violation.
3. Was the Closing Disclosure delivered in time for an April 1 consummation? What should the broker do?
Read the worked answer
The Closing Disclosure must be received by the borrower no later than three business days before consummation. For this waiting period, business days are all calendar days except Sundays and federal holidays.
Delivery on Friday, March 28, for a Tuesday, April 1, closing leaves only Saturday and Monday as intervening business days. That is two business days, not three. The borrower needed to receive the disclosure by Thursday, March 27, to close April 1.
The broker should not close April 1 unless the borrower receives a corrected Closing Disclosure and a new three-business-day waiting period runs. If the disclosure is received Friday, March 28, closing on Wednesday, April 2, would satisfy the waiting period. The broker should also correct the tolerance violation and document the refund.