RESPA Good Faith Estimate Tolerance Error

Issue/Inquiry

The Bank believes that a loan it closed may be out of tolerance with respect to its GFE disclosures and the closing costs reflected in the HUD-1 Settlement Statement.  It asks for the GFE and HUD-1 to be reviewed and whether a refund should be made to the customer.

Response Summary

The HUD-1 Settlement shows transfer taxes of $990, although none were indicated on the GFE. It also shows an appraisal fee of $395, while the GFE indicated a fee of $350, and government recording fees of $99 when the GFE showed fees of $84.

The disclosure of the transfer taxes is subject to zero tolerance, that of the appraisal and recording fees, to a tolerance of 10 percent for the aggregate of the charges with which they are included.

In order to cure the tolerance error for the transfer taxes, the Bank must reimburse the borrower with a sum of $990 for the transfer taxes and $15 for the appraisal and recording fees, for a total of $1,005, the amount by which the charges at settlement exceeded the tolerance for those disclosed in the GFE.

Response Detail

The Good Faith Estimate of Settlement Costs (“GFE”) shows no transfer taxes in Block 8, an appraisal fee of $350 in Block 3, and recording fees of $84 in Block 7. As reflected on the HUD-1 Settlement Statement dated July 10, however, a charge of $990 was made for transfer taxes and charges of $395 and $99 were made for the appraisal and recording fees.

The purpose of the GFE is to provide an estimate of settlement charges a borrower is likely to incur, as a dollar amount, and related loan information. It is considered to be in good faith if the charges it discloses do not exceed the tolerance allowed by RESPA. “Tolerance” means the maximum amount by which the charge for a category or categories of settlement costs may exceed the amount of the estimate for such category or categories on a GFE. 12 CFR §1024.2(b).

On the GFE, the amount the borrower is likely to pay for transfer taxes is disclosed in Block 8. The amount of transfer taxes cannot change at settlement from those disclosed in the GFE, absent changed circumstances. 12 CFR §1024.7(e)(iv); HUD, New RESPA Rule FAQs, GFE – Block 8, 1 & 2.

A 10 percent tolerance is allowed for the sum of the prices of each service listed in Block 3, Block 4, Block 5, Block 6, and Block 7, if the loan originator requires the use of a particular provider or the borrower uses a provider selected or identified by the loan originator, again barring changed circumstances. 12 CFR §1024.7(e)(2). Assuming that the borrower was allowed to choose the title services in Block 5 and the owner’s title insurance in Block 6, the 10 percent tolerance would apply to the aggregate of the fees disclosed in Blocks 3 and 7. These total $450, compared to the actual charges totaling $510 in the HUD-1.

If any charges at settlement exceed the charges listed on the GFE by more than the prescribed tolerances, the loan originator may cure the tolerance violation by reimbursing the borrower the amount by which the tolerance was exceeded, either at settlement or within 30 calendar days after settlement.  A borrower will be deemed to have received timely reimbursement if the loan originator delivers or places the payment in the mail within 30 days after settlement. 12 CFR §1024.7(i).

In this case, the transfer taxes collected at settlement exceed those disclosed in the GFE by $990. The amount of this particular charge subject to cure, therefore, is $990.

With respect to the appraisal and recording fees, the 10 percent tolerance would by $45, meaning that the charges at settlement could not exceed $495. The aggregate amount charged at settlement for these services was $510, meaning that the cure would be a reimbursement of $15.

The total reimbursement in this case would be $990 plus $15 or a total of $1,005. Such reimbursement should have been made within 30 calendar days of the settlement.

As noted above, if changed circumstances result in increased costs for any settlement services such that the charges at settlement would exceed the tolerances for those charges, the loan originator may provide a revised GFE to the borrower. “Changed circumstances” include such matters as “Acts of God”; information particular to the borrower or the transaction that was relied upon in providing the GFE that changed or was found to be inaccurate after the GFE was provided; and other circumstances that are particular to the borrower or transactions, such as boundary disputes or the need for flood insurance. Borrower-requested changes may also justify a revised GFE being issued. 12 CFR §1024.2(b); 7(f)(3).

In order to be effective, however, the revised GFE must be issued within three business days of the loan originator learning of the changed circumstances or within three business days of the borrower’s request. 12 CFR §1024.7(f)(1); (f)(3). If the Bank in this case did not issue a revised GFE in response to changed circumstances or the borrower’s request within that time period, it is too late to do so now.

This entry was posted on Monday, July 20th, 2015 at 2:00 pm.