Loan Estimate Revision, Changed Circumstances, and Closing Disclosure Timing
On Monday, March 3, Priya submits a refinance application to Cornerstone Lending for her home in Lawrence, Kansas. Cornerstone receives the application that day and issues the initial Loan Estimate on Wednesday, March 5. Priya locks the rate on Thursday, March 6. On Monday, March 10, the lender discovers the property is in a FEMA flood zone, which requires $1,200 of flood insurance, and the appraiser raises the appraisal fee from $450 to $650 because the property is rural. The lender also adds a $75 courier fee. On Tuesday, March 11, Cornerstone issues a revised Loan Estimate reflecting all three changes. The Closing Disclosure is issued Monday, March 31; consummation is scheduled for Wednesday, April 2. Priya receives the CD in person on March 31. The loan processor asks whether the revised LE and CD timing are compliant and whether any fee can exceed the original estimate.
1. Was the initial Loan Estimate timely? Apply the three-business-day rule and identify the relevant date.
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The initial Loan Estimate appears timely. Regulation Z requires the creditor to deliver the LE or place it in the mail no later than three business days after receiving the application. Cornerstone received the application on Monday, March 3, and issued the LE on Wednesday, March 5. Counting Tuesday and Wednesday as the first two business days, March 5 is within the three-business-day window, assuming there were no intervening federal holidays and the LE was delivered or mailed that day. The analysis should use the date the application was received, not the date the borrower first spoke with the loan officer. If March 5 delivery occurred after the close of business, the lender should confirm whether it placed the LE in the mail that day; mailing can satisfy the delivery rule but adds the applicable receipt period for later timing rules.
2. May Cornerstone use the March 11 revised Loan Estimate? Analyze the changed circumstance, timing, and fee tolerances.
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The flood-zone discovery and the rural-property appraisal increase are new facts that were not reasonably available at the time of the original LE, so they can support a valid changed circumstance. The lender received the information on March 10 and issued the revised LE on March 11, within three business days, which is timely for resetting the baseline for the affected fees. However, the $75 courier fee needs separate support; merely adding a fee is not a changed circumstance unless it results from new information or a borrower-requested change. The appraisal fee is in the 10% cumulative tolerance category, so the increase can be measured against the revised baseline only if the revised LE was delivered timely. Flood insurance is a property insurance premium and is generally not subject to the same tolerance category, but the lender should still disclose it accurately. One more issue: if the March 6 rate lock changed the rate or points from the initial LE, a revised LE was required on the date of the lock, not March 11. The lender should verify the lock terms and cure any tolerance violation.
3. Is the March 31 Closing Disclosure timely for an April 2 consummation? If not, what is the earliest permissible closing date?
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It is not timely. The consumer must receive the Closing Disclosure no later than three business days before consummation. For a Wednesday, April 2 consummation, the three business days before closing are Tuesday, April 1; Monday, March 31; and Friday, March 28. Because the CD was received on Monday, March 31, only two business days remain before April 2, so the three-business-day waiting period is not satisfied. The closing should be delayed. If the CD was received in person on Monday, March 31, the earliest permissible consummation would be Thursday, April 3, because Tuesday, Wednesday, and Thursday would then be the three business days after receipt. If the CD had been mailed rather than delivered, an additional three days would generally be added. The lender should also check whether any later change to the CD requires a revised CD and a new three-business-day waiting period.