Under the TRID rules, if an appraised value comes in less than we anticipated and the applicant already has received the Loan Estimate, do we have a valid changed circumstance permitting us to issue a revised Loan Estimate? The lower appraisal value means that the loan amount will change, but none of the charges disclosed on the Loan Estimate will change.

No, we do not believe the TILA-RESPA Integrated Disclosure (TRID) rules permit you to issue a revised Loan Estimate simply due to a lower appraised value of the property (subject to the discussion below). While you state that the charges will not change, the loan amount, estimated payments, cash-to-close and possibly other loan terms set forth in the original Loan Estimate will change in the Closing Disclosure, due to the lower appraised value of the property. The different amounts itemized in the original Loan Estimate must be stated in the Closing Disclosure for comparison purposes.

Regulation Z permits creditors to issue revised Loan Estimates only for certain specified “changed circumstances.” A lower than expected appraisal amount is not one of those “changed circumstances.” One example of a “changed circumstance” is when information that you relied on for the Loan Estimate has changed and that change has caused an estimated charge to increase for the closing. In this case, you have indicated that none of the charges set forth in the Loan Estimate have increased. Because there is no “changed circumstance” as defined in the rule, you are not permitted to use a revised Loan Estimate for purposes of comparing the originally estimated charges to the final charges disclosed in the Closing Disclosure.

We do note that the Official Interpretations for Regulation Z state that if charges subject to the 10% tolerance test have not changed by more than 10% (another scenario that does not qualify as a “changed circumstance”), a creditor may issue a revised Loan Estimate – but only for informational purposes and not for use with the Closing Disclosure. Extrapolating from that example, we believe that you also may issue a revised Loan Estimate in this situation — but again, for informational purposes only. Our conclusion is supported by the CFPB’s statements during a TRID webinar: “[T]he [TRID] rule does not prohibit the creditor from issuing revised disclosures for informational purposes . . . . [T]he rule does not prohibit the creditor from issuing an updated disclosure reflecting the changed estimates — and a creditor has the option of doing so.” (A transcript of the webinar is linked to below.)

If you do issue a revised Loan Estimate for informational purposes (in the absence of a defined “changed circumstance”), the CFPB has commented that you “must have a mechanism for tracking which disclosure controls for purposes of determining good faith . . . .” In other words, you must be able to ensure that your bank’s system will pull the estimated charges from the original Loan Estimate when filling out the Closing Disclosure, notwithstanding the updated and more accurate charges disclosed in the revised Loan Estimate provided for informational purposes.

For resources related to our guidance, please see:

Regulation Z, Official Interpretations, 12 CFR 1026, Paragraph 19(e)(3)(iv), Comment 1 (“. . . Pursuant to § 1026.19(e)(3)(iv), for purposes of determining good faith under § 1026.19(e)(3)(i) and (ii), the creditor may use a revised estimate of a charge instead of the amount originally disclosed under § 1026.19(e)(1)(i) if the revision is due to one of the reasons set forth in § 1026.19(e)(3)(iv)(A) through (F).”)

Regulation Z, Official Interpretations, 12 CFR 1026, Paragraph 19(e)(3)(iv), Comment 2 (“The revised disclosures may reflect increased charges only to the extent that the reason for revision, as identified in § 1026.19(e)(3)(iv)(A) through (F), actually increased the particular charge. . . .”)

Regulation Z, Official Interpretations, 12 CFR 1026, Paragraph 19(e)(3)(iv)(A), Comment 1(ii) (“. . . . Section 1026.19(e)(3)(iv) does not prohibit the creditor from issuing revised disclosures, but if the creditor issues revised disclosures in this scenario, when the disclosures required by § 1026.19(f)(1)(i) are delivered, the actual title fees . . . must be compared to the originally estimated title fees . . . .”)

ABA Transcript, CFPB TRID Webinar (May 26, 2015), pages 5–6 (“Question: In a scenario where the creditor’s estimate of closing costs changes, but the prior estimate remains ‘in good faith’ for purposes of Section 1026.19(e)(3), is the creditor prohibited from providing the consumer with a revised disclosure? Answer: See Comment 19(e)(3)(iv)(A)-1.ii. As stated in Comment 19(e)(3)(iv)(A)-1.ii, the rule does not prohibit the creditor from issuing revised disclosures for informational purposes. . . . the rule does not prohibit the creditor from issuing an updated disclosure reflecting the changed estimates — and a creditor has the option of doing so. Keep in mind, however, that in that case, the updated disclosure will not impact the good faith analysis under 1026.19(e)(3)(i)–(iii). And the creditor must have a mechanism for tracking which disclosure controls for purposes of determining good faith.”)