TRID Baseline Tolerance Adjustment Calculator and Certification


By Mike Patterson posted on June 26th 2015 Back

Currently, many compliance audits can be performed before a loan is purchased by a simple review of the data on a loan's Good Faith Estimate and HUD I Settlement Statement. For covered loans closing with application dates on or after October 1, 2015, things change. The CFPB will require loan originators to document loan costs/fee variances between the original Loan Estimate and the final Closing Disclosure and any adjustment of the tolerances "off sheet" according to "a mechanism for tracking which disclosure controls for purposes of determining good faith". On May 26th the CFPB in their TILA-RESPA Integrated Disclosures Part 5-Common Questions provided the following common question and answer:

Common Questions - Revised Disclosures
Q: In a scenario where the creditor's estimate of closing costs changes, but the prior estimate remains "in good faith" for purposes of Section 1026.19(e)(3), is the creditor prohibited from providing the consumer with a revised disclosure?

Answer-See Comment 19(e)(3)(iv)(A)-1.ii:

Assume a creditor provides a $400 estimate of title fees, which are included in the category of fees which may not increase by more than 10 percent for the purposes of determining good faith under §1026.19(e)(3)(ii), except as provided in §1026.19(e)(3)(iv). An unreleased lien is discovered and the title company must perform additional work to release the lien. However, the additional costs amount to only a five percent increase over the sum of all fees included in the category of fees which may not increase by more than 10 percent. A changed circumstance has occurred (i.e., new information), but the sum of all costs subject to the 10 percent tolerance category has not increased by more than 10 percent. Section 1026.19(e)(3)(iv) does not prohibit the creditor from issuing revised disclosures, but if the creditor issues revised disclosures in this scenario, when the disclosures required by§ 1026.19(f)(1)(i) are delivered, the actual title fees of $500 may not be compared to the revised title fees of $400; they must be compared to the originally estimated title fees of $400 because the changed circumstance did not cause the sum of all costs subject to the 10 percent tolerance category to increase by more than 10 percent.

Q: The current HUD-1 has a comparison chart to show the applicable tolerance levels and how the charges compare. Where is the equivalent chart on the Closing Disclosure?

Here is the pertinent part of transcript from the CFPB webcast:

TILA-RESPA Integrated Disclosures, Part 5: Implementation Challenges and Questions
Tuesday, May 26, 2015
Slides 17, 18 and 19
From transcript: Minutes 24:20—29:23
(Emphasis added)
Pedro, in a scenario where the creditor’s estimate of closing costs changes, but the prior estimate remains “in good faith” for purposes of section 1026.19(e)(3), is the creditor prohibited from providing the consumer with a revised disclosure? No, Brian. Slide 18 please. As stated in comment (1)(ii) to 1026.19(e)(3)(iv)(a) the rule does not prohibit the creditor from issuing revised disclosures for informational purposes. When estimates change, section 1026.19(e)(3)(i)-(iii) determines whether the changes are in good faith. To be clear, throughout this answer, the phrase in “good faith” will refer to the good faith determination under that specific section 1026.19(e)(3). Bear in mind that the loan estimate is a disclosure to the consumer. The loan estimate alone will not indicate whether estimates are in good faith. To determine whether estimates are in good faith, the creditor must perform the analysis under section 1026.19(e)(3)(i)-(iii). If the creditor performs that analysis and determines that changed estimates are not in good faith then, under certain circumstances 1026.19(e)(3)(iv) and (e)(4), may allow the creditor to reset the estimates in order to be in good faith. When resetting the estimates under those circumstances, the rule requires that the creditor to provide the consumer with a revised loan estimate—or- in certain instances explained in comment 1 to 1026.19(e)(4)(ii) a closing disclosure. But even if the creditor determines the changed estimates remain in good faith the rule does not prohibit the creditor from issuing an updated disclosure reflecting the changed estimates-and a creditor has the option of doing so. However, keep in mind in that case, the updated disclosure would not impact the good faith analysis under section 1026.19(e)(3)(i)-(iii) and that the creditor must have a mechanism for tracking which disclosure controls for purposes of determining good faith. Let’s consider an example. The scenario and comment (1)(ii) to 1026.19(e)(3)(iv)(a) assumes that a creditor previously provided a $400 estimate of title fees. For purposes of determining good faith, title fees are generally included in the category of fees that in aggregate may not increase by more than 10%. This scenario further assumes that a changed circumstance increases the title fees from $400 to $500 and at the sum of all costs subject to the 10% tolerance category has not increased by more than 10%. Under section 1026.19(e)(3)(ii) the prior estimate remains in good faith. Therefore, the rule does not permit the creditor to reset the estimate since the total charges in the 10% tolerance category are still in good faith. However, the creditor has the option of providing the consumer with an updated disclosure reflecting the increase in title fees and when the creditor performs a good faith analysis under section 1026.19(e)(3)(i)-(iii) the actual title fees of $500 may not be compared to the revised estimate of $500. Instead, they must be compared to the originally estimated title fees of $400 because the changed circumstance does not cause the sum of all costs subject to the 10% tolerance category to increase by more than 10%. Thank you very much, Pedro. If we can have slide 19 please. Danya, this is a question for you. The current HUD I has a comparison chart to show the applicable tolerance levels and how the charges compare. Where is the equivalent chart on the closing disclosure? There is no chart on the closing disclosure equivalent to the HUD I comparison chart. The creditor is responsible for tracking charges “off sheet” to ensure that the amounts disclosed on the loan estimate were made in good faith and that the charges at closing do not exceed the applicable tolerances. To the extent there are any refunds from the creditor to the consumer for violation of the good faith standard, the refund should be disclosed with lender credit on page 2 of the closing disclosure. As shown on the slide, any refund should be itemized in a manner as shown in form H25(f) of appendix H.

Link: https://www.webcaster4.com/Webcast/Page/577/8180

Re multiple changed circumstances increasing the 10% tolerance, the commentary to Section 1026.19(e)(4)(i) indicates that multiple changed circumstances, each of which increases the 10% bucket by less than 10%, can be taken together to determine a breach of the 10% threshold:

ii. Assume a creditor receives information on Monday that, because of a changed circumstance under § 1026.19(e)(3)(iv)(A), the title fees will increase by an amount totaling six percent of the originally estimated settlement charges subject to § 1026.19(e)(3)(ii). The creditor had received information three weeks before that, because of a changed circumstance under § 1026.19(e)(3)(iv)(A), the pest inspection fees increased by an amount totaling five percent of the originally estimated settlement charges subject to § 1026.19(e)(3)(ii). Thus, on Monday, the creditor has received sufficient information to establish a valid reason for revision and must provide revised disclosures reflecting the 11 percent increase by Thursday to comply with § 1026.19(e)(4)(i).

After October 1, 2015, purchasers of covered loans should require from the loan originators those "off sheet" calculations and confirm that any fee variances complied the new integrated disclosure requirements.

To assist loan originators, investors and warehouse lenders we have developed a free "TILA-RESPA Integrated Disclosure 10% Baseline Calculator" that can provide the necessary analytics and loan specific certification: http://www.ppdocs.com/Calculators/TRIDBaseline.aspx

A sample certification is included below.

Your LOS system may track these variances on loans you produce directly, however your system may not track third party originations in a similar manner. You will need an affirmative representation that you have been provided all the Loan Estimates and Closing Disclosures from the loan originator as well as a way to document any adjustment of the tolerances "off sheet" according to "a mechanism for tracking which disclosure controls for purposes of determining good faith". If you purchase third party originated loans and want to direct your correspondents to our site to run this calculation and produce a certification on the loans you are considering for purchase we would be glad to add your name to the “Investor Pick List”. Otherwise they can still use the calculator and create the certification by choosing the “Other” option and typing in your name (Loan Purchaser) in manually.

Again--this service is free.

Sample Certificate

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