Banking Interpretations

April 2, 2003


To: Deputy Superintendent Ken Bielemeier - Mortgage Banking Division

From: Jacquelyn A. Hart, Associate Counsel - Legal Division

Subject: Revisions to Good Faith Estimates 

This is in response to your March 17, 2003 e-mail to Sara Kelsey regarding the requirements for issuing a revised good faith estimate in certain instances.

It appears that the primary source of guidance for when a good faith estimate must be provided and revised is the Truth In Lending Act, and Regulation Z promulgated thereunder.  12 C.F.R. §226.19(a)(1) provides that in residential mortgage transactions that are subject to the Real Estate Settlement Procedures Act ("RESPA"), a creditor shall make a good faith estimate of settlement charges before consummation, or deliver or place them in the mail not later than three business days after the creditor receives the borrower's written application, whichever is earlier.  For those transactions that are not subject to RESPA, 12 C.F.R. §226.17(b) requires a creditor to make good faith estimate-type disclosure before consummation of the transaction.  

12 C.F.R. §226.17(e) additionally provides that if, as a result of a subsequent event, the original disclosure becomes inaccurate, then the creditor might be required to provide new disclosure.  The instances in which this new disclosure would be required and when that disclosure would be required to be delivered are:  

  • if disclosure was made early and a term was changed that was not clearly labeled an "estimate," that term must be redisclosed before consummation;

  • if disclosure was made early and the annual percentage rate ("APR") at the time of consummation varies from the APR earlier disclosed by more that 1/8 of 1 percentage point in a regular transaction or more than 1/4 of 1 percentage point in an irregular transaction[1], all changed terms must be redisclosed before consummation (unless the transaction is subject to RESPA, in which case the creditor may provide the revised terms at the later of consummation or settlement); and

  • in the case of a variable-rate mortgage, where there is a post-consummation adjustment to the interest rate, with or without a corresponding adjustment to the payment, new disclosure is required to be delivered to the consumer.

Based upon the foregoing, in answer to your question, the instances requiring a revised good faith estimate are not limited to those where an application is changed from fixed to adjustable rate.  The licensed mortgage banker is required to give a revised good faith estimate to the consumer in advance of the consummation of the transaction when (i) the original early disclosure was not clearly identified as an estimate or (ii) there is a significant change in the applicable APR and the transaction is not subject to RESPA.  In all other instances where there is a change in one or more of the terms of a transaction, the licensed mortgage banker must provide the consumer with revised final disclosure at the time of consummation of the transaction. 


Noted: _______

[1] An irregular transaction is one that includes one or more of the following features: multiple advances, irregular payment periods, or irregular payment amounts (other than an irregular first period or an irregular first or final payment) (fn. 46 to 12 C.F.R. §226.22(a)(3)).