The Truth-in-Lending RESPA Integrated Disclosure Rule (TRID) has been in effect since October 2015. With almost a decade to learn the ins and outs of the disclosures required under the rule, most lenders are aware that it’s imperative to disclose fees as accurately as possible to avoid errors that could create potential tolerance cures. To highlight the common errors that can lead to reimbursement scenarios, the three different tolerance buckets are explored in depth below.
- The three tolerance buckets are zero tolerance, 10% tolerance and unlimited tolerance
- The official definition of “in good faith,” as interpreted for TRID, is that due diligence is exercised to gather information that is reasonably available
- Common errors might include failure to meet the good faith standard and a missing or incomplete loan estimate or service provider list, among others
What’s Included in the Zero Tolerance Bucket?
No individual fee in the zero percent tolerance bucket can increase beyond what was disclosed on the loan estimate (LE) unless there is a triggering event, such as a changed circumstance, that allows for a revised LE. Lenders must ensure that the disclosed values for these fees are accurate. The fees included in the zero percent tolerance bucket include any fees paid to and retained by the creditor, a mortgage broker or affiliates of the creditor or mortgage broker. Usually, most of these fees are located in Sections A and B of the LE. Some examples of those fees include, but aren’t limited to:
- Origination charges
- Lender required services that the borrower is not allowed to shop for, including appraisal fees, credit report fees, flood determination fees and more
- Application fees
- Transfer taxes
What is the Good Faith Standard?
The good faith standard comes into play under the zero tolerance bucket. What does “in good faith” mean? The official interpretations discuss exercising due diligence to obtain information that’s reasonably available at the time of issuance. If the fees disclosed to the consumer weren’t made in good faith, they become a zero tolerance fee and can’t increase above what was originally disclosed on the initial LE.
What’s Included in the Ten Percent Tolerance Bucket?
The ten percent aggregate tolerance bucket encompasses third-party services for which the consumer was allowed to shop. If the consumer chooses a provider from the service provider list your institution provided to them for fees located in Section C of the LE and recording fees, then those fees are included in the ten percent bucket.
The aggregate amount of the charges paid by or imposed on the consumer at consummation may not exceed ten percent for fees originally disclosed on the LE. In the event these fees were not disclosed in good faith, they would be subject to the zero tolerance bucket. Some examples of those fees include, but are not limited to:
- Title company services, including lender’s title insurance, settlement fee, search and exam fee
- Inspections, including pest, septic and well water
- Recording charges, including deed of trust or mortgage, subordination, warranty deed
What’s Included in the Unlimited Tolerance Bucket?
Certain fees, such as the shopped services in which the consumer chose a provider other than those included on the service provider list, non-lender required services, and insurance premiums all can fall into the unlimited tolerance bucket as long as they meet the good faith standard. A few examples of these fees include, but are not limited to:
- Prepaid interest
- Homeowner’s insurance premium
- Initial escrow payment at closing
- Those fees disclosed in Section H, including the owner’s title insurance premium, warranty and non-lender required inspections
What are Common Errors in TRID Disclosures?
The list below includes common errors that can lead to tolerance cures and reimbursement scenarios.
- Inaccurate estimate of prepaid interest or property taxes
- Underestimating third-party fees
- Inaccurately disclosing transfer taxes
- Missing LE or service provider list
- Not meeting the good faith standard when disclosing certain fees
Understanding the tolerances that result from inaccurately disclosing fees is paramount to help avoid potential reimbursements made by your institution. Following TRID guidelines carefully and fully can help ensure your organization dispenses accurate and complete loan estimates in a timely manner. For a more in-depth review of TRID policies, including additional examples of common errors in the process, watch the on-demand webinar recording of the Tread Carefully with TRID – Owning Your Fee Tolerances and Managing Disclosure Documents.
The Anders Banking and Financial Institutions team helps organizations like yours navigate complex compliance requirements. To learn more about how our services can add value to your institution, and the associated fees, request a meeting with an Anders advisor below.All Insights