No one knows everything. Decisions are usually based on incomplete information, assumptions, and guesswork to one degree or another. And that’s especially true when it comes to lending.
TRID can be rigid and unforgiving at times, unfairly demanding perfection from the human beings responsible for making the loans. But there are places where there is flexibility built into the system, and you should take advantage of those areas when you can.
Here’s how to look at fees, charges, and lender credits to take advantage of TRID’s flexibility.
Fees and Charges
When disclosing fees and charges, what do you do if you aren’t sure what the fee will be? When there is a range of possible costs to disclose on the LE, it’s tempting to automatically assume and disclose the highest since you can always adjust down on the CD. But you can’t always adjust up when the cost is higher than expected without a valid change of circumstance. So why not just assume and disclose the maximum fee possible across the board? Can you do that?
Creditors have the obligation to give good faith estimates of the costs of a loan to applicants. A disclosure is in good faith if it is based on the best information reasonably available to the creditor, and the creditor is required to exercise due diligence in obtaining information. 1026.19(e)(1). An estimated charge is also in good faith if the charge paid by the consumer does not exceed the amount originally disclosed.
The requirement to exercise due diligence to obtain the information suggests that you cannot simply disclose the maximum cost for fees on all applications. While in general it’s preferable to disclose an estimate on the high side of a possible fee, there still must be an effort to determine what is likely to be imposed on a borrower. Across the board disclosures of fees or charges does not suggest that proper due diligence was performed by a creditor, as it clearly would not be a fee that would be imposed on all borrowers and there would be many cases where it would be immediately apparent that the applicant would not have to pay the maximum fee. So across the board disclosures of maximum fees does not appear to meet the creditor’s due diligence requirement.
However, having a general policy of disclosing the maximum potential cost in cases of uncertainty is likely to be acceptable under the good faith requirement. The good faith requirement only concerns itself with actual charges exceeding the disclosed estimates. Thus the requirement itself suggests that the maximum possible charge should be disclosed as an estimate when the actual charge is not yet known.
What does this mean? It means you need to make some effort to provide accurate disclosures. Where there is ambiguity or questions, aim high for fees and charges. But where you know, or should know, with relatively reasonable certainty what the fee will be, then you need to be ready to disclose that charge instead of an artificially inflated fee hoping to get around tolerance issues.
The flip side is that lender credits should be the opposite; you should disclose as few lender credits as possible.
Decreasing lender credits is seen as an increased cost to the consumer under 12 CFR 1026.19(e)(3)(i)—Comment 5. This can become an issue with “no cost” loans where the creditor agrees to cover the closing costs for the borrower. It can be a pitfall for creditors though who overestimate the costs on the LE, indicate that an equal amount of lender credits will be given to cover the costs, and then later try to decrease the lender credits when the original estimated costs turn out to not be so high. Even though those lender credits were earmarked for a particular fee, the regulation does not treat them that way on the LE; so if the fee decreases, you can’t also decrease the lender credits with it.
So what should you do? The opposite of what you should do for fees and charges. When there is ambiguity or uncertainty about how many lender credits you will have to provide, aim as low as possible. The good faith requirement still requires you to disclose the credits that are a practical certainty, but when it’s not a certainty, err on the low side.
Bryan T. Noonan, Esq.
Regulatory Compliance Consultant
SPILLANE CONSULTING ASSOCIATES, INC.
501 John Mahar Highway, Suite 101
Braintree, MA 02184