Since the implementation of the Know Before You Owe TILA-RESPA Integrated Disclosure (TRID) Rule in October 2015, we have all seen our fair share of challenges with the new disclosures. You might even say it has given you a reason to drink. Now that more than a year has gone by, many of those difficult questions have been answered through webinars, direct phone calls with the Consumer Financial Protection Bureau (CFPB), and system workarounds. However, some questions still remain regarding the rate lock requirements and the Loan Estimate (LE). For example – Is my rate truly locked? Does it have to be in writing? Must I send a revised LE when I subsequently lock the rate? Here are the answers.
Although not addressed in the specific language of the regulation, the Preamble to the Final Rule is clear. A written rate lock agreement is not required in order for you to set the rate or honor a quoted rate to the consumer. However, where a creditor has a policy to honor a quoted rate but does not lock the rate pursuant to a “written” agreement with the consumer, the creditor will indicate “NO” on the top of page 1 of the LE. In other words, there is nothing preventing you from honoring a specific rate without a written agreement, but the rate is not considered “locked” as it pertains to the disclosure requirements of the rule.
Let’s look at this a little deeper. The Preamble refers to the rate lock agreement as an “executed” agreement. Better said, a rate lock agreement is essentially a contract between your institution and the consumer. Of course state law comes into play, but generally speaking a document such as a contract should be in writing to be executed or enforceable. You may certainly choose to honor a verbal agreement even though it is not in writing. If you sell into the secondary market, then chances are any secondary market investors will require such an agreement to be in writing anyways.
The understanding that the contract must be in writing also provides clarity to whether a revised Loan Estimate must be provided pursuant to a subsequent rate lock agreement or when an existing agreement expires or is extended. If the initial Loan Estimate is provided without a rate lock agreement, then the subsequent execution of a formal agreement or the expiration of an existing written agreement is considered a valid changed circumstance requiring redisclosure of the Loan Estimate. The revised estimate must reflect the fact that the rate is locked at the top of page 1 and provide the date and time (including applicable time zone) in which the rate will remain locked. Any subsequent verbal agreement or promise to honor a specific rate will not trigger a revised disclosure as such an agreement will not be considered a valid changed circumstance. In this case, you would simply reflect the promised rate on the initial Closing Disclosure.