We believe that your institution should issue a refund for all costs that you were required to disclose on the Loan Estimate, including escrowed property taxes, to cure your failure to provide a good faith estimate for any of the loan costs.

Regulation Z allows creditors to cure a failure to provide good faith estimates by refunding any amounts exceeding the disclosed estimates within sixty days after the loan consummation (while also providing a revised Closing Disclosure). However, Regulation Z does not address whether the failure to provide the Loan Estimate means that all loan costs are deemed to have been originally estimated as zero for the purposes of calculating the refund. We believe that in cases where you have failed to provide any Loan Estimate, a reasonable interpretation of Regulation Z would be to treat all loan costs as estimated at zero and consequently refund all loan costs that should have been estimated on the Loan Estimate, including escrowed property taxes, in full.

Unfortunately, the failure to provide a Loan Estimate entirely is a separate violation of Regulation Z’s timing requirements that cannot be cured by issuing a refund. Regulation Z requires creditors to provide a Loan Estimate no later than the third business day after receiving the consumer’s application, and Regulation Z does not provide a cure for violating this requirement by failing to provide a Loan Estimate entirely.

For resources related to our guidance, please see:

• Regulation Z, 12 CFR 1026.19(e)(1)(i) (“In a closed-end consumer credit transaction secured by real property or a cooperative unit, other than a reverse mortgage subject to § 1026.33, the creditor shall provide the consumer with good faith estimates of the disclosures in § 1026.37.”)

• Regulation Z, 12 CFR 1026.19(f)(2)(v) (“If amounts paid by the consumer exceed the amounts specified under paragraph (e)(3)(i) or (ii) of this section, the creditor complies with paragraph (e)(1)(i) of this section if the creditor refunds the excess to the consumer no later than 60 days after consummation, and the creditor complies with paragraph (f)(1)(i) of this section if the creditor delivers or places in the mail corrected disclosures that reflect such refund no later than 60 days after consummation.”)

• Regulation Z, 12 CFR 1026.19(e)(3)(iii) (“An estimate of any of the charges specified in this paragraph (e)(3)(iii) is in good faith if it is consistent with the best information reasonably available to the creditor at the time it is disclosed, regardless of whether the amount paid by the consumer exceeds the amount disclosed under paragraph (e)(1)(i) of this section. For purposes of paragraph (e)(1)(i) of this section, good faith is determined under this paragraph (e)(3)(iii) even if such charges are paid to the creditor or affiliates of the creditor, so long as the charges are bona fide:

(A) Prepaid interest;

(B) Property insurance premiums;

(C) Amounts placed into an escrow, impound, reserve, or similar account;

(D) Charges paid to third-party service providers selected by the consumer consistent with paragraph (e)(1)(vi)(A) of this section that are not on the list provided under paragraph (e)(1)(vi)(C) of this section; and

(E) Property taxes and other charges paid for third-party services not required by the creditor.”)

• Regulation Z, Official Interpretations, Paragraph 19(e)(3)(iii), Comment 3 (“Similarly, the amount disclosed for property taxes must be based on the best information reasonably available to the creditor at the time the disclosure was provided. For example, if the creditor fails to include a charge for property taxes, or includes an unreasonably low estimate for that charge, on the original estimates provided under § 1026.19(e)(1)(i), then the creditor’s failure to disclose, or unreasonably low estimation, does not comply with § 1026.19(e)(3)(iii) and the charge for property tax would be subject to the good faith determination under § 1026.19(e)(3)(i).”)

• Regulation Z, Official Interpretations, Paragraph 19(f)(2)(v), Comment 1 (“Section 1026.19(f)(2)(v) provides that, if amounts paid at consummation exceed the amounts specified under § 1026.19(e)(3)(i) or (ii), the creditor does not violate § 1026.19(e)(1)(i) if the creditor refunds the excess to the consumer no later than 60 days after consummation, and the creditor does not violate § 1026.19(f)(1)(i) if the creditor delivers or places in the mail disclosures corrected to reflect the refund of such excess no later than 60 days after consummation.”)

• Regulation Z, 12 CFR 1026.19(e)(1)(iii)(A) (“The creditor shall deliver or place in the mail the disclosures required under paragraph (e)(1)(i) of this section not later than the third business day after the creditor receives the consumer’s application, as defined in § 1026.2(a)(3).”)