Now that August 1st has been extended to October 3rd, summer vacations are back on, but TRID preparation continues.
In any scenario, you hunt for problems and brainstorm solutions. One problem that we’re sure you’ve identified with TRID is that more fees fall into a 0% category. (Appraisals, credit reports, and possible closing attorney and lender’s title insurance).
Well one idea to better comply with a 0% tolerance fee is to over-disclose. For example, let’s say you have 10 attorneys that close loans for you, all charging from $650 to $850 to close a loan. What do you disclose on the Loan Estimate if you’re not sure which attorney will be assigned? Perhaps you “overdisclose” by estimating $850 … or for that matter, $1,000.
Is that okay?
What happens if the ultimate charge is less than that in the Loan Estimate, is that permissible even though it’s a 0% category?
Fortunately, there are some clear answers here.
First of all, there is not necessarily any violation if a fee decreases. If you estimate the attorney will charge $650, and she ultimately charges $625, there is no violation because the attorney fee is a 0% tolerance. The 0% tolerance limitation only works against the lender, not for the lender.
But the bigger issue is this: a lender cannot intentionally over-disclose to avoid tolerance issues. For example, if a fee is typically in the $400 – $600 range, a lender cannot provide a Loan Estimate of $1,000 just to be safe. The Loan Estimate requires a “good faith estimate” of all fees. The estimate is not in “good faith” if you estimate higher than you expect it to come in at.
Why not? What’s the rationale behind this? The Loan Estimate is supposed to be a reliable legal document. The practice of over-disclosing forces loan officers into a situation where they have to explain that this “reliable” “legal” disclosure is actually misleading- that it is not really accurate. (“Don’t worry, we just have to disclose $1,000 to be safe, it’s likely to come in much lower.”)
Where does this leave us? In a tough position. A fee listed on the Closing Disclosure can be lower than the fee listed on the Loan Estimate for a fee that is subject to a 0% tolerance, but the estimate of that fee on the Loan Estimate still has to have been made in good faith.
Thanks for letting me help a little bit, I know this blog is in the early stages, but hopefully we can start to build on this and develop this into a useful tool for years to come. Always feel free to reach me at BenGiumarra@scapartnering.com