A processor asks how to handle a file where a valid changed circumstance raises a fee before the Closing Disclosure has been issued. Which response is most accurate?
Correct Answer
C) Issue a revised Loan Estimate within three business days
Why this is correct: Under Regulation Z (12 CFR 1026.19(e)(3)(iv) and (e)(4)(i)), a valid changed circumstance that increases a fee before the Closing Disclosure is issued allows for a revised Loan Estimate. The creditor must issue this revised Loan Estimate within three business days after obtaining sufficient information about the changed circumstance. Why the other choices are wrong: "Increase disclosed costs based on an internal pricing preference without file-specific support" is wrong because fee increases must be tied to a specific, valid changed circumstance affecting that particular loan file, not to internal preferences. "Use the revised Loan Estimate only to improve pricing after the borrower shops a competitor" is wrong because a revised Loan Estimate cannot be used for strategic repricing; it is only permitted when a bona fide changed circumstance occurs. "Treat every underwriting condition as a changed circumstance even when it does not affect the charge" is wrong because a changed circumstance must be an event that causes an increase in a specific charge; not every underwriting condition qualifies. Exam tip: A 'changed circumstance' must be specific and directly affect a charge. General underwriting conditions do not automatically qualify.
Why This Is the Correct Answer
The correct response is "Issue a revised Loan Estimate within three business days". A valid changed circumstance permits a revised Loan Estimate, but the timing window is still three business days after sufficient information is received.
Why the Other Options Are Wrong
Option A: Increase disclosed costs based on an internal pricing preference without file-specific support.
This choice is a tempting shortcut, but it conflicts with changed-circumstance documentation because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Option B: Use the revised Loan Estimate only to improve pricing after the borrower shops a competitor.
This choice is a tempting shortcut, but it conflicts with changed-circumstance documentation because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Option D: Treat every underwriting condition as a changed circumstance even when it does not affect the charge.
This choice is not the best answer because it applies the wrong file step for changed-circumstance documentation; the governing rule is tested by the correct option.
Memory Technique
Changed circumstance questions usually test both the reason and the timing.
Exam Tip
For changed-circumstance documentation questions, separate the required file step from plausible sales, timing, or documentation shortcuts.
Common Mistakes to Avoid
- -Do not assume every cost increase is barred; the issue is whether a valid changed circumstance supports redisclosure.
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