The Loan Estimate (LE) can be tricky because not all data is disclosed at the time it must be issued to the mortgage applicant. As such, it was no surprise when on one of our webinars, someone asked the following:
If the LE Must Be Provided Based On Incomplete Information, What Should I Do When a Change Increases An Estimated Cost?
Good question. Fortunately, our speaker Ben Olson, former Deputy Assistant Director for the Office of Regulations at the Consumer Financial Protection Bureau (CFPB), had an answer:
Similar to the current GFE and TIL requirements, the LE must provide a “good faith estimate” of the terms and charges associated with the transaction. The core requirement here is that you must “exercise due diligence” to obtain “the best information reasonably available . . . at the time the estimate is provided.” Fortunately, you generally may rely on the representations of the parties and service providers. However, your systems must be able to track these representations and tie them to the estimates provided on the LE because the TRID rule requires you to maintain records demonstrating compliance with these requirements.
TRID Tolerances On Increasing Estimated Charges
Even if an estimate was based on the best information reasonably available, additional restrictions on increasing the estimated charges apply. Specifically, unless an exception applies:
- You cannot charge more than the amount on the LE for lender fees, broker fees, transfer taxes, affiliate fees, and third-party fees if the consumer could not shop for the service (“zero tolerance” category); and
- You are limited to an aggregate increase of 10% for the total amount of recording fees and third-party fees for the services for which the consumer is permitted to shop (“10% tolerance” category).
While at first blush these may seem like the familiar “tolerances” adopted by HUD under RESPA in 2010, they differ in several important respects. Most notably, affiliate fees have been moved to the zero tolerance category, so you must disclose the exact cost ultimately charged to the consumer for all fees paid to an affiliate, unless a permitted exception applies. Furthermore, the rule expands liability to include a private right of action for violations of the tolerance requirements because the Bureau’s “good faith” requirement relies on TILA as well as RESPA.
When the limitations or tolerances apply, the amount actually paid by the consumer at closing can only exceed the amount on the LE if a “changed circumstance” or other exception applies (a “permitted exception”), and a revised LE is issued within three business days of “receiving information sufficient to establish that” the exception applies.
Maintain Proof For Each Loan Estimate Cost Increase
The TRID rule specifically requires you to maintain proof of the reasons justifying each cost increase. This means that, for each increase, you must document:
- The information demonstrating that the increase falls within one of the permitted exceptions;
- When you learned of that information;
- That the increase is solely attributable to the exception; and
- That a revised disclosure was provided within the applicable time period.
As with tracking the application information, your systems must also be able to track and store the cost information coming from various sources (the borrower, the settlement agent, appraisers, and other service providers), determine when a permitted cost increase has occurred, and issue a revised disclosure by the applicable deadline.
This can be especially complicated when, for example, multiple changed circumstances cause multiple increases of less than 10% in charges that fall within the 10% tolerance category. The TRID rule provides that the 10% tolerance does not reset until there has been an aggregate increase of 10% or more and a revised LE has been provided within three business days of receiving information establishing that increase. However, the CFPB’s forms do not include a total for the charges in the 10% tolerance category, so you must track this separately.
Consider the following scenario, which is adapted from an example provided by the CFPB in the TRID rule:
- The estimated fees for the pest inspection and title services on your initial LE are subject to the 10% tolerance category.
- After the initial LE is provided, you receive information that a permitted exception caused the pest inspection fee to increase by 5% of the total amount of charges in the 10% tolerance category. Because the increase is less than 10%, you are permitted – but not required – to provide a revised LE informing the consumer of the increase. Regardless, this increase does not reset the 10% tolerance category and this LE will be disregarded when determining compliance.
- Three weeks later, on a Monday, you receive information that another permitted exception has caused the title fees to increase by 6% of the total amount of charges in the 10% tolerance category. Because there has now been an aggregate increase of more than 10%, you must provide a revised LE within three business days (i.e., by Thursday) if you want to pass the 11% increase on to the consumer. If you do so, this revised LE will be used to assess compliance.
This example shows that determining compliance goes beyond tracking each individual cost increase. To accurately determine whether you have complied with the TRID rule, you must be able to maintain a running tally of cost increases with documentation of the permissible exception justifying each increase so that you know when a revised LE must be provided.
 12 C.F.R. § 1026.19(e)(1)(i).
 12 C.F.R. § 1026.17(c)(2)(i); cmt. 17(c)(2)(i)-1.
 Cmt. 17(c)(2)(i)-1 (stating that lenders “might look to the consumer for the time of consummation, to insurance companies for the cost of insurance, or to realtors for taxes and escrow fees”).
 Cmt. 19(e)(3)(iv)-3 (stating that lenders “must retain records demonstrating compliance with the requirements” to provide the LE).
 12 C.F.R. § 1026.19(e)(3)(i); Cmt. 19(e)(3)(i)-1.
 12 C.F.R. § 1026.19(e)(3)(ii).
 See 78 Fed. Reg. 79730, 79799 (Dec. 31, 2013).
 12 C.F.R. § 1026.19(e)(4)(i). If charges increase because the interest rate was not locked when the LE was provided, and you enter into a rate lock agreement with the borrower, the revised LE must be provided on the date the interest rate was locked. 12 C.F.R. § 1026.19(e)(3)(iv)(D). The Bureau has proposed to relax this requirement so that the revised LE need not be provided until the next business day after the rate is locked. See, e.g., 79 Fed. Reg. 64336, 64344 (Oct. 29, 2014) (hereinafter “Proposed Amendment”).
 Cmt. 19(e)(3)(iv)-3.
 Cmt. 19(e)(3)(iv)-3.
 12 C.F.R. § 1026.19(e)(3)(iv)(A); cmts. 19(e)(3)(iv)(A)-1.ii and 19(e)(4)(1)-1.ii.
 Cmt. 19(e)(4)(i)-1.ii.