TRID and Revised Loan Estimate After Consumer Chooses Listed Service Provider

Issue/Inquiry

Currently, the Bank is issuing an initial Loan Estimate with the title insurance being listed under Loan Costs, Section C (“Services You Can Shop For”). A list of preferred providers, which includes two title insurance providers, is given to loan applicants. On occasion, customers shop for their own title insurance provider, but usually settle on one of the two providers listed by the Bank. In the event that the customer selects such a provider, the Loan Department is amending the Loan Estimate to relocate those title insurance fees to Loan Costs, Section B (“Services You Cannot Shop For”). Is this practice correct?

Response Summary

The selection by the consumer of a service provider listed on the list of service providers was not a changed circumstance justifying the issuance of a revised Loan Estimate. Moreover, changing the service from one the consumer can shop for to one the consumer cannot shop would have the effect of removing it from charges which, in aggregate, are subject to 10 percent tolerance, to one which has zero tolerance. In the event the charge for the service at closing exceeded what had been estimated, the Bank would have to argue that the revised Loan Estimate issued was without effect, in order to avoid a penalty.

Response Detail

Under the TRID rules, a creditor can issue a revised Loan Estimate for the purpose of demonstrating good faith and resetting tolerances under the following circumstances:

• Changed circumstances causing the estimated charges to increase beyond the applicable tolerance
• The consumer is ineligible for an estimated charge previously disclosed because a changed circumstance affected the consumer's creditworthiness or the value of the security for the loan
• The consumer requests revisions to the credit terms or the settlement that cause an estimated charge to increase
• The points or lender credits change because the interest rate was not locked when the Loan Estimate was provided
• The consumer indicates an intent to proceed with the transaction more than ten business days after the Loan Estimate was provided
• Delayed settlement date on a construction loan. 12 CFR §1026.19(e)(3)(iv); Official Interpretations, 1026.19(e)(3)(iv) – 1.

The term “changed circumstances” means:

• An extraordinary event beyond the control of any interested party or other unexpected event specific to the consumer or transaction
• Information specific to the consumer or transaction that the creditor relied upon when providing the Loan Estimate and that was inaccurate or changed after the disclosures were provided
• New information specific to the consumer or transaction that the creditor did not rely on when providing the Loan Estimate. 12 CFR §1026.19(e)(3)(iv)(A).

In this case, the selection by the consumer of a title company that is on the list of Service Providers given by the Bank was not a changed circumstance recognized by the TRID rules and does not fall within any of the other criteria for issuing a revised Loan Estimate. As such, there was no justification for the issuance of a revised Loan Estimate by the Bank.

The TRID rules provide that when a service is required by the creditor, but the creditor allows the consumer to shop for the service and the consumer selects a service provider from the list provided by the creditor, the charge is subject to a cumulative 10 percent tolerance variation. This means that the amount of each charge subject to this variation limitation can change, so long as the aggregate amount of the charges is no more than 10 percent greater than what was estimated. If the service is required by the creditor and the creditor does not allow the consumer to shop for the service, it is subject to zero tolerance.  12 CFR §1026.19(e)(3)(i),(ii).

By moving the title insurance fee from “Services You Can Shop For” to “Services You Cannot Shop For,” the Bank would have succeeded only in creating the implication that the charge that was subject to a cumulative 10 percent tolerance variation is now one subject to zero tolerance.

There is a question as to how the Bank would be affected in such a case, if the cost of title insurance at closing exceeded the cost disclosed on the revised Loan Estimate. The official commentary provides that, for the purpose of determining good faith, revised charges are compared to actual charges if the revision was caused by a changed circumstance. Official Interpretations, 1026.19(e)(3)(iv)(A) – 1.

A “voluntary” revision of the Loan Estimate would not have the effect of resetting tolerance levels, since it was not the result of a changed circumstance. This means that the parties would have to look back to the original disclosure to determine whether the changed fees were within the applicable tolerance. At least, this is what the Bank would have to argue, if it wanted to avoid a zero tolerance situation and a possible penalty. The better practice, therefore, would be to issue a revised Loan Estimate only when allowed, so that this argument would not have to be made.

This entry was posted on Monday, April 3rd, 2017 at 1:34 pm.