By Venessa Snell posted on April 27th 2015
The major changes taking place for TRID come October 3, 2015, are bearing down on the industry. Now that most have a generalized concept of the larger cogs in this ticking clock, they are starting to dig deeper into the smaller components of the moving parts. One of these small components entails the tolerance categories we have become accustom to, are now facing restructure. The initial jolt of the new zero tolerance category, including items for which the consumer cannot shop (appraisals, credit reports etc…) is still humming steadily through group talks and forums. While Lenders may still be trying to grasp how the new zero tolerance will affect their business, one can’t forget that the 10% has also had an overhaul. The most readily apparent is that the new zero fees are being extracted from the current 10% tolerance, but that is not the only change to come. “Rebaselining”, has become a large point of discussion.
The baseline is the figures used when comparison testing for the zero and 10% tolerance aggregates. In a current transaction scenario, where a fee in your 10% category increases after initial disclosure, a lender may redisclose the GFE within the allotted time frame of 3 days from receiving the new information. The new GFE then takes the place of the previous disclosure and your comparison for 10% tolerance fees is “rebaselined” to align with the updated fee. Come October 3, 2015, this tolerance test will be enhanced with a few more moving targets. Take this same scenario and fast forward to a Loan Estimate. The rule does not permit “re-baselining” of the 10% tolerance bucket when a changed circumstance results in a fee increase that does not cause the aggregate fees in that category to increase by more than 10%. The Bureau determined that to allow such incremental “re-baselining” of the 10% tolerance category every time a changed circumstance occurred would effectively undermine the 10% tolerance threshold.
Accordingly, if a changed circumstance occurs that results in the 10% tolerance fees increasing by more than 10%, then the lender may issue a revised LE and “re-baseline” the 10% tolerance category. If, however, the changed circumstance results in a fee increase that is less than 10% (ie. within tolerance), then the lender may choose to issue a revised LE. . . but may not “re-baseline” the 10% tolerance category. Instead, the lender will have to continue to use the original LE’s 10% category baseline when calculating tolerances, regardless of the number of revised LEs that are issued (unless and until the 10% tolerance threshold is breached). Example: Section C- Survey Fee increased. When all are selected from the Written List of Providers (will move to Section B on Closing Disclosure). The 10% category was not breached therefore the original amount is used as your "baseline".
PPDocs will not be able to track our clients’ internal redisclosures, but we will be providing informative prompts to assist in establishing a baseline when preparing a Closing Disclosure. It will be imperative to remember that numerical values from a final Loan Estimate may not necessarily be one and the same as those needed to run the final 10% tolerance test.