Rate Lock, Fee Tolerances, and a Closing Disclosure That Arrives Too Late
On Monday, March 3, an originator takes a complete application for a $400,000 purchase loan and issues a Loan Estimate on Wednesday, March 5. The LE shows a $650 appraisal fee (the borrower may shop from a written list), a $45 credit report, $1,200 title services from the lender's affiliated title company, $150 recording, $2,400 transfer taxes, and a $3,200 origination fee. On Thursday, March 20, the borrower locks at 6.375%, and a revised LE is issued Friday, March 21. At closing the affiliate title charge is $1,540, the appraisal is $700, and recording is $175. The closer emails a Closing Disclosure Wednesday at 4:10 p.m. for a Friday 10:00 a.m. consummation and asks whether the title increase can be 'cured on the CD' so the closing does not slip.
1. Was the March 21 revised Loan Estimate timely for the rate lock, and what limits apply to it?
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The lock is a valid changed circumstance, but only for the charges and terms the lock actually changes. Under Regulation Z §1026.19(e)(3)(iv)(D), when the consumer locks a rate the creditor must deliver or place in the mail a revised Loan Estimate no later than three business days after the lock date, showing the revised rate, periodic payments, and corresponding changed charges. Locked Thursday, March 20, the deadline is Tuesday, March 25 (Friday, Monday, Tuesday). Issuing the revised LE on Friday, March 21 is timely.
Two limits matter. First, the revised LE re-baselines good faith only for items affected by the lock; the lender cannot use it to reset the title or appraisal baseline. Second, delivery rules still apply - paper or E-SIGN-compliant electronic delivery the borrower can keep. A rate lock does not excuse a fee increase that was already known or that is simply the affiliate charging more.
2. Perform the tolerance analysis and state any cure owed.
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Categorize each fee first.
Zero tolerance: origination fees, transfer taxes, and fees paid to the lender or its affiliate. Title from the affiliate: $1,200 disclosed versus $1,540 charged = $340 over. That is a tolerance violation, not a changed circumstance, because the same affiliate provided the same service.
10% cumulative bucket: recording and appraisal, because the borrower could shop for the appraisal from the written list. Baseline $650 + $150 = $800; the 10% cap is $880. Actual $700 + $175 = $875, under the cap, so no cure there. If the borrower had chosen an off-list appraisal provider, that fee would be unlimited-tolerance instead.
Cure: refund $340 to the borrower and reflect it on a corrected Closing Disclosure no later than 60 days after consummation; the lender should not wait for a complaint. The March 21 revised LE does not cure this because the title increase was unrelated to the rate lock. Re-check the origination and transfer tax lines for any offsetting reduction before finalizing the cure.
3. Can the loan close Friday as scheduled? What must the closer do?
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The Wednesday 4:10 p.m. email does not support a Friday consummation. For the Closing Disclosure waiting period, a business day is every calendar day except Sundays and federal holidays (Reg Z §1026.2(a)(6)), so Saturday counts. Consummation Friday requires receipt by Tuesday at the latest; receipt Wednesday leaves only Thursday.
Correct course: move consummation to Monday or later (with Wednesday receipt, Thursday, Friday, and Saturday supply three business days), or re-deliver a corrected CD and wait three business days from actual receipt. Email delivery is effective only with E-SIGN consent and evidence the borrower accessed it; otherwise use paper or a confirmed method.
Also determine whether the corrected CD changes the APR by more than 1/8 of a percentage point (1/4 for irregular transactions) or adds a prepayment penalty; if so, a new three-business-day review is required even after the first wait is satisfied. The $340 cure should appear as a credit, and a borrower signature on the CD is not a waiver of the waiting period.