Understanding TRID Fee Cures
This is part one of a two-part blog series about managing TRID fee cures. The information provided herein is for general informational purposes only, and does not, nor is it intended to, constitute legal advice.
Also known as “know before you owe,” the TILA-RESPA Integrated Disclosure (TRID) rule requires mortgage lenders to communicate the costs and fees associated with purchasing a home via standardized Loan Estimate and Closing Disclosure forms. TRID is important to supporting a healthy housing economy because it provides consumers with the information they need to make informed home financing decisions — a prerequisite to successful, sustainable homeownership. At the same time, TRID compliance can be a sore spot for even the most diligent, well-intentioned lenders, as the rule’s complexity can be onerous and violations can be costly.
This blog provides an overview of TRID fee disclosure requirements, as well as common challenges lenders face in meeting them and where fee cures come into play.
Fee Tolerances and Fee Cures
Under TRID, lenders are held to a good faith standard in their fee disclosure practices – a standard that is measured by comparing the fees disclosed to consumers against the fees paid by consumers. TRID sets tolerances for how much fees can change (if at all) after they have been disclosed, which fall into three categories: zero tolerance, 10% tolerance and no tolerance.
Zero Tolerance fees
Fees that fall into the zero-tolerance category should not increase after the delivery of the Loan Estimate. Unless an event that triggers a revised Loan Estimate occurs, increases to fees in this category result in a tolerance violation. To amend a tolerance violation, lenders must pay borrowers the difference between the amount they were quoted and the amount they were charged. This payment to borrowers is known as a “fee cure.”
Lenders are held to strict standards on this category of fees because, with the exception of transfer taxes, they fully control the fee amounts and service provider selection for these line items. Fees that fall in the zero tolerance category include, but are not limited to, loan origination fees, discount points, appraisal fees and credit report fees, among others.
10% Tolerance fees
Fees that fall into the 10% tolerance category include third-party services that borrowers can shop for, such as home inspectors, and other expenses, such as recording fees and government charges. Unlike zero tolerance fees which are assessed individually, 10% tolerance fees are assessed as a cumulative category. If the sum of all fees in the 10% tolerance category increases by 10% or more after delivery of the Loan Estimate, then the lender is required to pay the difference in fee cures.
No Tolerance fees
Lenders are not held responsible for changes to fees that fall into the no tolerance category because they have no control over these fees. Examples of no tolerance fees include homeowners insurance, real estate taxes and homeowners association (HOA) fees, among others.
Consequences of Fee Tolerance Violations
Quoting fees within permitted tolerances is an ongoing challenge for mortgage lenders that requires continuous monitoring, staff training and improvements to processes and technology. Depending on the strength of a lender’s disclosure systems, fee tolerance violations can be a hot spot of liability.
For one, fee cures can be very costly, with some lenders averaging hundreds of dollars in fee cures per loan that can add up to hundreds of millions of dollars in losses at the portfolio level. Fee tolerance violations can sometimes delay closing until documents can be redrawn and reimbursements are distributed. Even in instances where fee tolerance violations do not necessitate a postponed closing, they make for messy transactions that are often stressful for borrowers and settlement agents. Also importantly, high rates of fee tolerance violations invite regulatory scrutiny.
Strategies for Reducing Fee Cures
For advice on how to mitigate fee cures, look out for part two of the blog series.
Ernst® Fee Service by Black Knight is a leading solution for automating the management of Loan Estimate and Closing Disclosure requirements. By more accurately quoting fees upfront, monitoring fees throughout the home financing process and helping lenders mitigate fee cures as they happen, Ernst Fee Service helps handle the operational burden of fee management and may help reduce costly fee cures. Schedule a demo to learn more about how Ernst Fee Service can help you reduce TRID fee cure losses.