What should a creditor do if a loan has been pulled from a previous creditor due to a longer-term time and is submitted to the new one? To add complexity, what if the previous lender’s fees were lower and an appraisal has already been ordered? Would the new creditor have to match fees and use a previous creditor’s loan number, or would the consumer be committed to using the first creditor with a longer term time and potentially miss the closing date?

There’s nothing in the rule that says creditors can’t do that. But there are some tricks and traps along the way I think that are embedded in this question. One being, at a very high level, will your investor buy the loan? That’s always going to be question one. And wherever there’s doubt, the answer may be no. These could be portfolio loans and it may not matter. But one thing to always think about is what the secondary market will do and what sort of controls are they going to have in place. That’s a big threshold question for a lot of loans. Assuming that’s not an issue, then it becomes a regulatory question as to what happens when a loan ID has been assigned. That’s something that is in the rules. The Bureau has given some flexibility as to when brokers can avoid putting a loan ID on a loan when they don’t know who the creditor is going to be. This was a big question that came up very early in the implementation process that the brokers and wholesalers were very concerned about. There’s this provision, 1026.37(a)(12) if I’m not mistaken, which is the Loan Estimate disclosure rule that says the loan ID determined by the creditor has to go on the Loan Estimate and then it has to track basically through the Closing Disclosure. And there doesn’t seem to be a way to change that once it’s there. The first big question we had is if the broker is generating the Loan Estimate and this has to be a creditor’s ID, what if the broker can’t get it? The Bureau said in that instance, that it’s acceptable if the best information reasonably available doesn’t provide the loan ID because you don’t know who the creditor is going to be, then it can be blank, and it can be later filled in by the creditor. The same goes for the creditor’s name. If the creditor’s name is not known, the broker can leave it blank and issue a Loan Estimate. Once a Loan Estimate has been done in a creditor’s name, with the creditor’s loan ID, it’s a little less clear how, or if, that can change under the rules. One way to read the rule is you can say nothing prohibits you from issuing a revised Loan Estimate correcting information that has changed or is wrong. You wouldn’t have a changed circumstance event necessarily, where you’re re-disclosing estimates here; you’d be re-disclosing information. And I don’t think there’s anything in the rule that specifically says you’re not allowed to do that because you had a change in creditor. The alternative, of course, would be that creditor A denies the loan or the consumer withdraws and then applies with creditor B. That may be a cleaner way to do it, but the rule doesn’t seem to foreclose either. Your investors may read the rule more conservatively and say that it does, but in my reading of the rule, it doesn’t specifically say no. As far as estimates go, I think that’s where it would get trickier. If a broker has provided estimates and you don’t have a changed circumstance or other event that changes that specific estimate, then I think creditor B is still going to have to live with it. Whether or not there’s a valid change of circumstance or a borrower-requested change, anything like that that would allow you to re-disclose the estimate and reduce it, that’s always going to be fact-specific and it’s going to depend on what has changed and why and how you can document it. You will always have a record retention requirement where you have to show evidence of compliance. If you have a change event you’ll have to make note of it and you’ll have to explain it. And it has to be tied to a specific charge.

Answered By: Andy Arculin