This month we’ll take a look at a common question that arises with a closing. We sat down with Tiffany Bahney, our Houston Closing Supervisor, to share her advice.
Tiffany, may a CD be used to lock a loan?
According to our attorneys, the answer is yes. However, based on my closing experience, there’s as risk, and here’s why:
Many investors will not accept a loan that doesn’t get locked on an LE before disclosing a CD to the borrower. That’s because the CD doesn’t disclose a rate/fee expiration date. If the buyer wants to lock with a CD when there is not sufficient time before closing to issue a revised LE to lock the rate, and the loan is being sold to an investor, my suggestion would be to obtain investor approval before proceeding. Once you disclose a CD to the borrower, you cannot revert back to an LE, so the safest practice is to always lock on an LE if you have time to do so.
Thanks, Tiffany!
By the way, if you need a quick summary of TRID that governs this question, here’s a quick overview from our attorneys:
Assuming that the initial Loan Estimate was previously provided, then TRID §1026.19(e)(4)(i) permits the locked rate to be disclosed on the initial CD without first providing a revised Loan Estimate disclosing the lock. See §1026.19(e)(4)(i) and (ii) below:
(4) Provision and receipt of revised disclosures. (i) General rule. Subject to the requirements of paragraph (e)(4)(ii) of this Section, if a creditor uses a revised estimate pursuant to paragraph (e)(3)(iv) of this Section for the purpose of determining good faith under paragraphs (e)(3)(i) and (ii) of this Section, the creditor shall provide a revised version of the disclosures required under paragraph (e)(1)(i) of this Section or the disclosures required under paragraph (f)(1)(i) of this Section (including any corrected disclosures provided under paragraph (f)(2)(i) or (ii) of this Section) reflecting the revised estimate within three business days of receiving information sufficient to establish that one of the reasons for revision provided under paragraphs (e)(3)(iv)(A) through (F) of this Section applies.
(ii) Relationship between revised Loan Estimates and Closing Disclosures. The creditor shall not provide a revised version of the disclosures required under paragraph (e)(1)(i) of this Section on or after the date on which the creditor provides the disclosures required under paragraph (f)(1)(i) of this Section. The consumer must receive any revised version of the disclosures required under paragraph (e)(1)(i) of this Section not later than four business days prior to consummation. If the revised version of the disclosures required under paragraph (e)(1)(i) of this Section is not provided to the consumer in person, the consumer is considered to have received such version three business days after the creditor delivers or places such version in the mail.