Do we have to re-disclose when adding a borrower to the loan application?

No. That may be an event where you want to re-disclose, but the obligation to re-disclose under the rule only occurs when you have an amount that has increased beyond tolerance due to a changed circumstance or other exception and you need to re-disclose within 3 days in order to pass that charge on to the consumer and reset the tolerance. Other changes do not mandate redisclosure of the Loan Estimate although you are always free to provide, voluntarily, a revised loan estimate or closing disclosure.

[In a follow up question, a listener asked whether every borrower needs to receive a Loan Estimate and, if so, whether a new Loan Estimate should be issued when a borrower is added.  In situations involving multiple borrowers, the long-standing rule in 12 C.F.R. 1026.17(d) continues to apply: “If there is more than one consumer, the disclosures may be made to any consumer who is primarily liable on the obligation.”  In the TRID rule, the CFPB revised comment 17(d)-2 to state:

When two consumers are joint obligors with primary liability on an obligation, the disclosures may be given to either one of them. If one consumer is merely a surety or guarantor, the disclosures must be given to the principal debtor. In rescindable transactions, however, separate disclosures must be given to each consumer who has the right to rescind under § 1026.23, although the disclosures required under § 1026.19(b) need only be provided to the consumer who expresses an interest in a variable-rate loan program. When two consumers are joint obligors with primary liability on an obligation, the early disclosures required by § 1026.19(a), (e), or (g), as applicable, may be provided to any one of them. In rescindable transactions, the disclosures required by § 1026.19(f) must be given separately to each consumer who has the right to rescind under § 1026.23. In transactions that are not rescindable, the disclosures required by § 1026.19(f) may be provided to any consumer with primary liability on the obligation. See §§ 1026.2(a)(11), 1026.17(b), 1026.19(a), 1026.19(f), and 1026.23(b).

Therefore, as long as the new borrower does not become the sole principal obligor, it appears that it is permissible to wait and provide both borrowers with the Closing Disclosure.  However, there is no question that the safest approach would be to provide a new Loan Estimate to both borrowers when the new borrower is added, as long as your system can put that Loan Estimate aside when checking the tolerances, as discussed below.]

Something important to note there, this comes back to your systems and processes. If you choose to voluntarily provide a Loan Estimate when not required by the rule, that Loan Estimate must be disregarded when evaluating compliance with the tolerance requirements. Here is an example of where that really matters: you have the 10% aggregate tolerance bucket, which applies to the total amount of all the different fees that make up that bucket. Did those fees go up by 10% or not? If they did, you need a valid changed circumstance or other exception. This is something the Bureau has clarified that was unclear under HUD’s rule. Well, not unclear — HUD ultimately came out differently on that point.

In any event, under the Bureau’s rule, if you have a changed circumstance that causes a charge in the 10% bucket to go up by less than 10%, that does not allow you to reset the 10% tolerance even though it’s a valid changed circumstance and even though, if this were a zero tolerance fee, you could reset. What the Bureau said is the cumulative changes need to push you over 10% before you get to reset. That doesn’t mean you lose the ability to pass that increase on to the consumer — it just means that you have to disclose 3 days from the date on which the changed circumstances push you over 10%.

So the question comes up that today many lenders will push out a new GFE if say something goes up by 4%. Can lenders continue to do that with the Loan Estimate? Yes, there is nothing prohibiting you from doing that but your system has to know that the voluntary Loan Estimate does not reset the tolerance. So when you’re calculating compliance with the 10% bucket, you need to be looking back past that voluntary Loan Estimate. You need to ignore that Loan Estimate when making the calculations.

Note: This transcript has been edited from the February 2015 TRID webinar for clarity and completeness.

Answered By: Ben Olson