Rate Lock, Revised Loan Estimate, and a Late Closing Disclosure
Buyer Luis applies for a $320,000 loan on a $400,000 purchase. The lender issues a Loan Estimate on Monday, April 1, showing $4,850 in closing costs, a $1,200 lender credit, and a 30-day rate lock. On April 10 the rate lock is extended 15 days; the lender charges a $450 lock-extension fee and raises origination by $500. On April 12 the lender adds a $175 appraisal rush fee because the appraiser must travel farther. The seller agrees to a $7,500 credit toward buyer closing costs. The title company is an affiliate of the lender and will pay the lender $300 per referral. The Closing Disclosure is delivered Wednesday, April 24, for a Friday, April 26, closing. Luis asks whether he can close on the 26th and keep the seller credit.
1. Is the Closing Disclosure delivery compliant? Explain the timing rule and the practical remedy.
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No. The Closing Disclosure must be received by the consumer at least three business days before consummation. If closing is set for Friday, April 26, delivery on Wednesday, April 24 does not leave three business days before consummation. The closing should be delayed, or the CD must be re-delivered so the consumer has the required period.
The “three business days” rule is designed to give the borrower time to review final loan terms and costs. A lender cannot cure a late delivery simply by having the borrower sign a waiver at closing. If the CD changes after delivery in a way that affects the required disclosures-such as the APR, loan product, or certain closing costs-a new three-business-day period may be triggered.
Practically, Luis should not close on April 26 unless the lender and settlement agent confirm compliance and document the timing. The safer course is to move closing to a date that gives three full business days after receipt. Luis should also compare the CD to the Loan Estimate before closing, because the late delivery may be coupled with changed fees.
2. How should Luis evaluate the lock-extension fee, the increased origination charge, and the appraisal rush fee?
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Luis should compare each charge with the Loan Estimate and determine whether there was a valid changed circumstance and whether the fee falls within zero tolerance, 10% cumulative tolerance, or no tolerance. A revised Loan Estimate generally must be provided within three business days of a valid changed circumstance.
The $450 lock-extension fee and $500 origination increase are not automatically chargeable just because the lender issued a revised estimate. Luis should ask:
- Did the rate lock change because of a lender delay or because Luis requested an extension?
- Was the origination increase caused by a valid changed circumstance, or is it a general fee increase?
- Was a revised Loan Estimate delivered within the required time?
The $175 appraisal rush fee needs the same analysis. If Luis requested a rush or the property required additional travel, that may support a changed circumstance; if the lender simply added a fee, it may be a tolerance violation. Luis should request a fee-by-fee comparison and an explanation in writing. He should not rely on the lender’s oral assurance that “it will all wash out at closing.”
3. What RESPA concerns arise from the title affiliate and the $300 referral payment, and how does the $7,500 seller credit affect the closing?
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The title company’s $300 payment to the lender “per referral” raises a RESPA Section 8 issue. Paying or receiving a fee for the referral of settlement service business is generally prohibited unless a stated exception applies. An affiliated business arrangement requires a timely written disclosure of the affiliation, and the affiliate may receive a return on ownership only if it is a bona fide provider and the charge is not a disguised referral fee. Luis should receive the affiliated business arrangement disclosure and should be free to shop, subject to the lender’s lawful requirements.
As for the seller credit, $7,500 is a seller concession toward the buyer’s closing costs. It cannot exceed the actual allowable closing costs, prepaids, and escrow deposits, and the lender’s interested-party contribution limits may cap it. It generally cannot be used to cover the down payment or to put cash in Luis’s pocket. The credit must be reflected on the Closing Disclosure, and any unused amount may be reduced.
Luis should ask for a revised CD showing the credit, verify that the lender has approved it, and confirm that the title affiliate disclosure was provided. If the referral payment is passed into Luis’s costs, he should question it.