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Conquering the Loan Estimate Part 1: Disclosing Interest Rates

In today’s blog post, we address the disclosure of interest rates on the Consumer Financial Protection Bureau’s Loan Estimate, which starting Aug. 1, 2015, will replace the current GFE and early Truth-in-Lending Disclosure.

Although the rule has specific requirements for disclosing interest rates, it does not address how interest rates should be disclosed under certain circumstances. For example, the rule does not specify how a hybrid loan should be disclosed. A hybrid loan would be a loan that is a combination of products, such as a Step Rate loan and an Adjustable Rate loan. The rule requires a creditor to select one loan product type from the following: Step Rate, Adjustable Rate, or Fixed Rate. (§ 1026.37(a)(10). When disclosing a hybrid loan, a creditor should disclose the loan as an Adjustable Rate loan. Although the interest rates during the step periods are known, the loan features periods where the interest will be adjusted, and such rates are not known at the time of consummation. Due to this uncertainty, hybrid loans more closely resemble Adjustable Rate loans and should be disclosed as such.

Additional confusion arises when disclosing the loan interest rate when the initial rate calculation differs from subsequent calculations. Since the rule requires creditors to use the best information available at the time of the loan consummation, the creditor should disclose the initial interest rate applicable at the date of consummation (§ 1026.37(b)(2)). Both Section 1026.37(b)(2) of the rule and the preamble to this section clearly state that the disclosed interest rate should be the rate at consummation. This requirement does allow creditors to disclose an interest rate that is a composite of different interest rates that are applicable when a transaction features multiple interest rates for different portions of a loan’s principal balance in a precomputed transaction. However, the allowance stems from the overarching rule that the disclosed interest rate should be the rate that applies at the consummation of the transaction.

Watch for the second part of this blog post as we address the disclosure of points and fees.


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If an interest decreases after the initial loan estimate is delivered is a lender required to redisclose the Loan Estimate or only redisclose if it increases? I know the additional 3 days would be required if the APR changes "up or down" so wasn't sure how or if that would apply here at all.

Hello Karen,

The lender is only obligated to update the Loan Estimate if
(1) a disclosed cost goes up pursuant to an acceptable changed circumstance and the lender wants to use that increased cost as a baseline for a tolerance calculation;
(2) when the borrower locks their interest rate;
(3) if the Loan Estimate expires before the consumer provides their intent to proceed; or
(4) for construction loans, if the scheduled settlement date is 60 days after the original LE was delivered.

In general there are five types of changed circumstances:
(1) borrower requested changes
(2) extraordinary events outside the control of any party
(3) new information unknown to the lender at the time of disclosure
(4) charges the are dependent on a consumers eligibility for a specific loan product; and
(5) charges that are dependent on the loan amount or interest rate.

While the lender can redisclose the Loan Estimate to provide notice of any changes to the borrower, they can only reset the baseline for tolerances if the change falls into these buckets.

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