Collecting Appraisal Fee Under TRID Rules Before Application is Completed

Issue/Inquiry

The Bank asks whether it can collect an appraisal fee under the TRID Rules even though the application lacks all six pieces of information.

Response Summary

The Bank can collect an appraisal fee after it has issued a Loan Estimate and obtained the consumer’s consent to the transaction described in the Loan Estimate. It can issue the Loan Estimate before the consumer provides all six pieces of information. For the purpose of determining whether the disclosure of the settlement costs in the Loan Estimate has been made in good faith, however, the TRID Rules presume that the Bank has obtained all six pieces of information. If it has not and the information it lacked before it issued the Loan Estimate causes the settlement costs disclosed in it to be out of tolerance, the Bank will not be allowed to claim this as a changed circumstance justifying the issuance of a revised Loan Estimate. In such a case, the Bank would have to absorb the costs in excess of the allowed tolerance. This is a risk the Bank should be aware of before it decides to issue a Loan Estimate before it has all six pieces of information.

Response Detail

Collecting fees from a consumer applying for a mortgage loan is not predicated upon the application being complete, but upon the Bank giving the consumer a Loan Estimate and obtaining the consumer’s consent to the transaction.

Under the Truth-in-Lending RESPA Integrated Disclosure (“TRID”) Rules, neither the Bank nor any other person is allowed to impose a fee on a consumer in connection with the consumer’s application for a mortgage transaction before the consumer has received the Loan Estimate and indicated his or her consent to proceed with the transaction described in that disclosure. The Bank is allowed to collect a reasonable and bona fide fee to obtain the consumer’s credit report before providing the Loan Estimate, but this is the only exception to the rule. 12 CFR §1026.19(e)(2).

The Bank is required to provide the Loan Estimate no later than the third business date after receiving the consumer’s application, which consists of:

• The consumer’s name
• The consumer’s income
• The consumer’s social security number to obtain a credit report
• The property address
• An estimate of the value of the property
• The mortgage loan amount sought. 12 CFR §1026.19(e)(1)(iii); 2(a)(3)(ii).

There is no requirement that the Bank must wait until all six pieces of information are provided before providing the Loan Estimate, only that when the six pieces of information are provided, the Loan Estimate must be issued within three business days.

This means that the Bank could issue a Loan Estimate to the consumer and obtain the consumer’s consent to the transaction described in the Loan Estimate prior to all six pieces of information being provided. It would then be allowed to collect a fee for the appraisal. Official Interpretations, ¶19(e)(3)(iv)(A)-3.

Whether the Bank will want to do this, however, will depend upon the risk of not being able to issue a revised Loan Estimate.

The TRID Rules allow the Bank to issue a revised Loan Estimate when changed circumstances cause the settlement costs to increase beyond the tolerance allowed for a good faith estimate of those charges. For example, if the Bank relied upon the stated income of the consumer or value of the property in providing the Loan Estimate, and this later proved to be inaccurate, the Bank could issue a revised Loan Estimate with a restatement of the settlement costs reflecting the correct information. 12 CFR §1026.19(e)(3)(iv)(A); Official Interpretations, ¶19(e)(3)(iv)(A)-2.

As noted, the Bank is not required to collect all six pieces of information making up an application before issuing the Loan Estimate. For the purposes of determining whether the Loan Estimate is provided in good faith, however, it is presumed that the Bank has, in fact, collected these six pieces of information. This means that if the Bank did not collect some of this information before issuing the Loan Estimate, and subsequently, it discovered that the settlement costs disclosed in the Loan Estimate were out of tolerance because of the information it had not collected, it would not be able to claim this as a changed circumstance justifying a revision of the Loan Estimate.

The official commentary provides the example of a creditor issuing a Loan Estimate prior to receiving the property address from the consumer. This creditor would not be allowed to claim the property address as a changed circumstance when it received such. Official Interpretations, ¶19(e)(3)(iv)(A)-3.

In this case, of course, the Bank would probably have the property address, if it was going to order an appraisal. If it issued the Loan Estimate even though it lacked one or more of the other six pieces of information, however, and this information subsequently resulted in an increase of the settlement costs beyond the allowed tolerance, it would not be able to claim that this information was a changed circumstance or that it was allowed to issue a revised Loan Estimate. This would mean that the Bank would have to absorb any cost which was outside the allowed tolerance.

This entry was posted on Monday, August 3rd, 2015 at 2:00 pm.