Originally, the rules required mortgage lenders to provide the revised loan estimate disclosure on the date a floating interest rate is locked by the borrower. That rule, however, prompted criticism from lenders that said it would be difficult to comply with due to the timing issues.
‘The rule gets dicey when it comes to locking in an [annual percentage rate] for a variable-rate loan,’ said Richard Andreano, practice leader of the mortgage banking group at Ballard Spahr, during an interview with MortgageOrb this past fall, before the changes were made.
‘When you've issued a loan estimate and then you learn of some facts that will change the charges, you have three business days to issue a revised one,’ Andreano said, explaining the impact of the new rule at the time. ‘But, the CFPB made an exception to that, which is when you issued your loan estimate in a floating-rate environment and now you've gone to lock. The rule, as written, says that on the date of lock, you have to issue the revised loan estimate. The bureau says, 'We think it is the date of the lock agreement – and we wrote it that way because the creditor controls when the lock agreement is issued.'’
However, as Andreano explained, most people in the industry initially interpreted the rule to mean that the disclosure had to be mailed when the lock actually took place. As a small concession, the CFPB clarified at the time that the rate lock could be based on an oral agreement.
‘Remember guys, if a consumer calls up and says, 'I want to lock,' and the lender says, 'OK, the rate is 5 percent,' and the consumer says, 'OK, I want to lock at 5 percent,' and the lender says, 'OK, you are locked at 5 percent' – well, under most state laws, that's an agreement,’ Andreano said. ‘You might put out something in writing after that – but at the point you have a meeting of the minds, you have an agreement.’
As Andreano explained, if the loan estimate had to be issued on the date of the lock, then lenders would have to ‘substantially change their lock policies.’ At the time, he said, most lenders were considering moving their lock deadlines to the early morning.
‘But imagine a consumer calling up at 10:30 a.m. and saying, 'I want to lock; I hear rates are going up,' and the lender says, 'Sorry, you missed the 8 a.m. cutoff – you can lock under tomorrow's rates,'’ he said. ‘It won't be good for customer service.’
Recognizing the problem, the CFPB has amended the rule so that lenders can now provide the revised loan estimate within three business days after a consumer locks, as opposed to the same day.
‘After hearing feedback from stakeholders, the bureau determined that the short turnaround could potentially pose challenges for creditors that currently allow consumers to lock interest rates late in the day or after business hours,’ the bureau states in a release. ‘That could result in creditors only allowing consumers to lock interest rates during business hours or even early in the day. Allowing three business days for the new loan estimate will give creditors enough time to provide new disclosures without having to reduce flexibility that consumers may have today in locking their rates.’
In addition, the CFPB has added a new field to the loan estimate form for loans that involve new home construction.
‘These construction loans often take longer to settle than other loans, and the estimated charges can change,’ the bureau says in its release. ‘Today's change creates a space on the loan estimate form where creditors could include language informing consumers that they may receive a revised loan estimate for a construction loan that is expected to take more than 60 days to settle.’
The ‘Know Before You Owe’ mortgage disclosure rules will go into effect on Aug. 1.