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Question: With interest rates rising, if the interest rate increases after we provide the initial Loan Estimate, how do we disclose that? Also, how would we disclose an interest rate increase occurring after we provided the CD?

Answer: As to your first question, assuming the interest rate change is not because of a written rate lock agreement between the bank and consumer, which triggers a revised LE, you can reflect the change on the initial CD. The APR is not tested from LE to CD, just from CD to subsequent CD. A variance at this stage is fine.

As to your question about an interest rate increase after the CD is issued, if the interest rate change created an APR tolerance issue, you would have to reissue the CD and restart your three-business day wait for closing. If there is no APR tolerance violation, then you may disclose the updated interest rate on the final CD at closing or, if this is a home equity loan, on the final CD at least one business day before closing.

For changes that happen after you issue the initial CD, the following rules would apply:

• As long as the changes are not increasing the fees that are subject to the 0% tolerance test or if the increased fees are subject to the 10% tolerance test and they are not changing by more than 10%, any adjustments can be reflected on the final CD, as it would not be considered a changed circumstance.

• If changed fees are subject to the tolerance tests, a revised CD would have to be provided to the applicants within three business days of learning of the changed circumstance or on the final CD, whichever comes first, in order to adjust the tolerance comparison. You should document the changed circumstance in your files as you would for one during the LE disclosure phase.

• If the changes are not related to fees subject to the tolerance tests or the changes do not rise to the level of a changed circumstance, a lender may always provide a revised informational CD can to the applicants prior to closing.

• A copy of the CD must always be available for review upon request by the applicant one day prior to closing.

• If the loan is a TX Home Equity loan, then TX law requires that the lender deliver a final CD to the applicants one day prior to closing.

A new three business day wait period during the CD disclosure phase is required under the following circumstances:

• The annual percentage rate disclosed becomes inaccurate, as defined in § 1026.22. An over disclosure of the APR with a corresponding over disclosure of the finance charge is not considered inaccurate under 1026.22.

• The loan product is changed, causing the loan product information disclosed to become inaccurate.

• A prepayment penalty is added, causing the statement regarding a prepayment penalty to become inaccurate.

The APR tolerance is .125% for regular transactions and .25% on irregular transactions.

1026.22(a)(2): As a general rule, the annual percentage rate shall be considered accurate if it is not more than 1/8 of 1 percentage point above or below the annual percentage rate determined in accordance with paragraph (a)(1) of this section.

1026.22(a)(3): In an irregular transaction, the annual percentage rate shall be considered accurate if it is not more than 1/4 of 1 percentage point above or below the annual percentage rate determined in accordance with paragraph (a)(1) of this section. For purposes of this paragraph (a)(3), 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).

PPDocs has a stop audit set in the system to call to the attention of the client that the APR increased by more than the allowed tolerance. If an investor is involved, you will need to check with them for any additional requirements they may impose.