I have a loan where the secondary market fixed 30 year product required a certain DTI level. The Client did not meet that, but we are offering him a portfolio loan ARM. The only thing changing is a fixed to ARM. The amount and term are remaining the same. according to my credit dept. nothing else is changing on the LE/CD.

Per TRID this would not qualify as a changed circumstance from what I understand, even though we do not need that to change the product. But it seems safer to deny the first loan and then start with a new application rather than worrying about anything changing on the LE/CD and violating any changed circumstance/tolerance rules.

Thank you all for your input! I hope that I am on the right track here.

You clearly counter-offered the client's application so why would you start over?
Not sure why you don't think this is a valid CC either....

If there is no change in any of the costs (or in a lender credit) from the original loan estimate, there is no changed circumstance.

Not sure how changing the product (fixed to arm) and the payments wouldn't be a CC.
Borrower should be informed of payment schedule, shouldn't they?

A change in loan product with no corresponding changes in the disclosed costs does not trigger a new LE. The change in product only triggers a new CD (if one has been issued) and a new 3 business day waiting period. If the product changes 5 days before consummation and you disclose those changes on the CD 3 business days before consummation you would be compliant.

The issue of a revised LE is primarily dependent on changes in the disclosed costs that would fall outside the applicable tolerance.

Never said it triggered a new LE.
Understand that it would trigger a new CD and additional wait.
I take issue with John's statement that unless there was a change in costs there wasn't a valid cc.
While 'the issue of a revised LE is primarily dependent on changes...in costs...', that's not the only reason, imho.
I still would redisclose based on the counter from fixed to ARM.

Did the borrower provide inaccurate income information? I may be way off on this?

1026.19(e)(3)(iv)(A)
A changed circumstance may also be information specific to the consumer or transaction that the creditor relied upon when providing the disclosures required under § 1026.19(e)(1)(i) and that was inaccurate or changed after the disclosures were provided. For example, if the creditor relied on the consumer's income when providing the disclosures required under § 1026.19(e)(1)(i), and the consumer represented to the creditor that the consumer had an annual income of $90,000, but underwriting determines that the consumer's annual income is only $80,000, then this inaccuracy in information relied upon is a changed circumstance.

My honest 'good faith' opinion regarding this.

You have a denial with a counter-offer. Counter-offer is accepted. Although the writers of TRID rules did not cover this anomaly...there is quite a bit of difference between a fixed rate and an ARM...forget the fees but looking at the bigger picture.

Okay...so you don't necessarily have to worry about a 3-day time crunch, but delivering a new LE if the loan is still early in the process only makes good sense and in keeping with spirit and intent.

If you are close to closing, then just show the changes on the CLoD...so therefore, in my most humble opinion, it depends on where you are in the process, but to ignore a change of disclosure that big under those circumstances (lower payment to qualify by means of an ARM) is only fair that the program be properly disclosed just like you would give it as a new application...which in it's purest essence...it is...

You have to keep the following statement in mind when you look at 1026.19(e)(3)(iv)(a).

(A) Changed circumstance affecting settlement charges.

In the above situation the change in product did not affect any settlement charges.

You could also look at the following:

(B) Changed circumstance affecting eligibility. The consumer is ineligible for an estimated charge previously disclosed because a changed circumstance, as defined under paragraph (e)(3)(iv)(A) of this section, affected the consumer's creditworthiness or the value of the security for the loan.

The information specific to the consumer and the transaction which caused the change in the product did not have an affect on any of the estimated charges.

Now if you want to issue a revised LE I guess that is your prerogative but remember it does not reset your tolerance nor will it IMO eliminate any other error that may have been on the original LE.

I totally agree with your last statement. If no fees changed, you are at least operating in good faith by showing the borrower what differences an ARM makes. Spirit. Intent. It's up to me to make sure it's otherwise accurate. Again, I'd go off the timing and how close I am or am not to actual CloD time.