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.
More Origination Questions
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During a post-application update, a quality-control reviewer encounters a Credit Analysis and Evaluation issue. Which response should avoid a shortcut that would misapply the rule?
A construction-to-permanent loan will disburse in 5 draws over 11 months before the permanent phase begins. Which Regulation Z appendix provides a disclosure method for multiple-advance construction transactions?
Before closing, the team discovers that a borrower asks which upfront charge can be collected before intent to proceed. What is the safest compliant answer?
A construction loan agreement allows advances only after documented completion of specified work. A builder requests the next draw, but no completion evidence has been provided. What should occur?
Before releasing the final construction draw, which combination most directly supports project completion and clear collateral?
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A branch manager asks about a loan file because a processor wants to omit known monthly obligations from underwriting. What should happen?
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