More often than not (don't get me started) we must re-issue a Closing Disclosure due to a processor error; however we are having a difficult time getting the front line to document in the loan file the reason for the CIC. Is this documentation a requirement? I'm getting ready to send out another e-mail and want to make sure I have all of the facts straight.

Thanks! I've been researching and will continue to do so; however right now I don't have any definitive.

A processor error is not a changed circumstance. Valid changed circumstances that cause an increase in costs are used to justify providing a revised LE that resets the cost at the higher number. Having said that, if an error is made on the CD that is provided 3 days before closing it can be fixed by providing a correct CD at closing. A revised CD along with a new 3-day wait is required only if 1) the disclosed APR becomes inaccurate, 2) the loan product changes, and/or 3) a prepayment penalty is added. See 1026.19(f)(2)(ii); Comment 19(f)(2)(ii)-1

You can't have a CIC on a CD - you just re-issue if you have to.

What do you mean reissue for a CIC?
Bank error is never a CIC so I'm confused.

I'm thinking Skittles is wondering if you must retain documentation of what the error was that caused the re-issuance of the CD. I think it's probably a good idea, but then again, i can normally spot what it was that got fixed (usually a change in the closing date) pretty quickly.

If you mean CIC for the LE, we have a form that is used and I review them all and sign off on them. If I determine its not a valid CIC, the LE is not sent and the form is pulled from the file.

However, if a correction is made on the CD provided at the closing the file should clearly indicate the reason for that correction so there is a trail for auditors and examiners to follow, even though it will not be a CIC that resets tolerance levels.

I think your trail is CD#1 vs. CD#2; it doesn't take long to figure out what changed.

I think it is probably easier on you to require some form of tracking. When it comes time to audit, you don't want to be trying to put the puzzle back together. Our bank has a Cadillac LOS (meaning lots of bells and whistles) and our Mortgage Division has a Honda Civic LOS (it gets the job done). Both systems include a tolerance tracking document that measures the baseline tolerance levels compared to closing numbers. They spit out an easy to read document tracking the changes.

Does your LOS have a similar function?

If we do make any corrections/adjustments to a CD (or a revised LE due a Changed Circumstance) we include a cover letter to the borrower explaining the differences and the reason for the updated disclosure. These cover letters are kept in the file along with the disclosures.

Also our LOS has fields in disclosure tracking to document the reason for the updated disclosure.

I'm a big fan of over-documentation.

Yes - sorry if my verbiage wasn't clear. We will re-issue a CD due to a processor not having correct information - or even having incorrect APR because they failed to put something in as a prepaid finance charge. Just found one that wasn't done correctly and it put the APR out of tolerance, but since it wasn't corrected they did not wait the additional 3 days.

How can a processor not have correct information? Can you give an example of what you're talking about? By the time you get to preparing the CD, all your costs need to be finalized.
As far as the APR tolerance being out of whack because a PPFC was missed, it sounds like you need to get a review step in BEFORE a CD goes out the door at all.

The most common reason i would think for re-issuing a CD is an incorrect closing date. Say the intent is to close on 7-8-2016, so a CD is given in person on 7-5-2016; then for whatever reason, someone can't make that closing date, so the closing date becomes 7-11-2016.

Truff - we had the review in before they went out the door but it's scaled back for several reasons. The root cause of our issues is lack of accountability and unfortunately the compliance department can't fix that. July is my quarterly report to the board and it will be well documented in the minutes (that I write). That's about all I can do.

From the Commentary to 1026.19(e)(3)(iv)

3. Documentation requirement. In order to comply with § 1026.25, creditors must retain records demonstrating compliance with the requirements of § 1026.19(e). For example, if revised disclosures are provided because of a changed circumstance under § 1026.19(e)(3)(iv)(A) affecting settlement costs, the creditor must be able to show compliance with § 1026.19(e) by documenting the original estimate of the cost at issue, explaining the reason for revision and how it affected settlement costs, showing that the corrected disclosure increased the estimate only to the extent that the reason for revision actually increased the cost, and showing that the timing requirements of § 1026.19(e)(4) were satisfied. However, the documentation requirement does not require separate corrected disclosures for each change. A creditor may provide corrected disclosures reflecting multiple changed circumstances, provided that the creditor's documentation demonstrates that each correction complies with the requirements of § 1026.19(e).

Dan, I agree, but that is .19(e) and the LE. They are talking about the closing disclosure. Any fees on the final CD should be supported by invoices or other documentation. There is no changed circumstance. The circumstances are what they are and the final CD is compared to the latest validly issued LE for tolerance considerations.

They are talking about the closing disclosure.

Yep....re-read the post....I agree once the CD is issued it's issued.

We're not changing tolerances (and we're at 0%), we're fixing mistakes - not including realtor commissions on the buyer's CD, incorrectly calculating the APR, incorrect property address, incorrect loan purpose (refinance instead of home equity) - those sorts of issues.

And "fixing" some of them won't eliminate any technical violations of the regulation. If you APR was wrong on the last CloD delivered as of the closing date, it's wrong. If it was inaccurate, you're in violation. The wrong property address on the final CloD is not a clerical error, so it's a violation even if you "correct" it.

I'm all in favor of providing the borrower with a "clean and accurate" disclosure. Just be aware that a post-closing CloD that perfect in every way may not undo some of the errors in the final disclosure at closing.

Yes John I agree - and I've cited it on my report (I review all loans after origination); however without support from senior management my hands are tied. We appear to be getting worse and I fear for the next compliance exam. My manager (Chief Credit Officer) knows and there is nothing he can do either. Can you say 'pattern or practice'?

Bringing back this post for a clarifying question.

If the scenario is that we do not have enough time prior to closing to reissue a revised LE, but instead use the CD to make the necessary changes of the changed circumstance, is a documented papertrail of the change necessary for the file? We complete a Changed Circumstance form when completing a revised LE which details what the changes are and the purpose of the changes, however I am wondering if this is necessary when completing the CD that has changes from the last LE completed.

If you are planning to reset any of the fees subject to the tolerance tests, I'm not sure why it would be treated any differently. You would need documentation of what caused the change and when and how you became aware of it.

1026.25

(c) Records related to certain requirements for mortgage loans.

(1) Records related to requirements for loans secured by real property or a cooperative unit. (i) General rule. Except as provided under paragraph (c)(1)(ii) of this section, a creditor shall retain evidence of compliance with the requirements of § 1026.19(e) and (f) for three years after the later of the date of consummation, the date disclosures are required to be made, or the date the action is required to be taken.

(ii) Closing disclosures. (A) A creditor shall retain each completed disclosure required under § 1026.19(f)(1)(i) or (f)(4)(i), and all documents related to such disclosures, for five years after consummation, notwithstanding paragraph (ii)(B) of this section.

(B) If a creditor sells, transfers, or otherwise disposes of its interest in a mortgage loan subject to § 1026.19(f) and does not service the mortgage loan, the creditor shall provide a copy of the disclosures required under § 1026.19(f)(1)(i) or (f)(4)(i) to the owner or servicer of the mortgage as a part of the transfer of the loan file. Such owner or servicer shall retain such disclosures for the remainder of the five-year period described under paragraph (c)(1)(ii)(A) of this section.

(C) The Bureau shall have the right to require provision of copies of records related to the disclosures required under § 1026.19(f)(1)(i) and (f)(4)(i).

Adding to what Dan provided, an auditor would probably have a hay day if you didn't have evidence of the Changed Circumstance in file. "If you don't have documentation, then it never happened."