TRID and the Disclosure of Other Charges

Issue/Inquiry

When the Bank provides a Loan Estimate for a refinance, it discloses a borrower’s attorney’s fee and owner’s title insurance fee. Both fees are listed in section H as being optional. Including these fees, however, has affected its ability to sell the loan, in that it creates the appearance of higher costs or fees. If the fees and charges are optional and the tolerance for them is unlimited, is the Bank required to disclose them? What is the Bank’s liability if a consumer decides to hire an attorney or obtain an owner’s policy, but does not inform the Bank of having done so?

Response Summary

Fees and charges must be disclosed on the Loan Estimate if the Bank requires them to be obtained as a condition of the loan, or if the consumer is required to pay for a service not required by the Bank, and the Bank is aware that such service will be or is likely to be obtained.

Response Detail

Whether it is appropriate to disclose a fee or charge for a service on the Loan Estimate depends on factors such as whether the creditor requires the service as a condition of the loan or whether it is a charge that will be paid by the consumer.

“Loan Costs” must be disclosed on the Loan Estimate if the creditor requires a service to be obtained by the consumer as a condition for the origination of the loan. 12 CFR§1026.37(f).  Loan Costs are broken down into three categories:

• Origination Charges
• Services You Cannot Shop For
• Services You Can Shop For

“Services You Can Shop For” are provided by persons other than the creditor or mortgage broker, and are services that the consumer can shop for and will pay at settlement. 12 CFR §1026.37(f)(3).

Under the subheading “Other” is an itemization of any other amounts regarding the transaction that the consumer is likely to pay or has contracted with a person other than the creditor to pay at closing, if the creditor is aware at the time of issuing the Loan Estimate. 12 CFR §1026.37(g)(4).

Examples of items that are disclosed in “Other” if the creditor is aware of them when it issues the Loan Estimate include commissions of real estate brokers or agents, additional payments to the seller to purchase personal property pursuant to the property contract, homeowner’s association and condominium charges associated with the transfer of ownership, and fees for inspections not required by the creditor but paid by the consumer pursuant to the property contract. Official Interpretations, 1026.37(g)(4) – 4.

As noted by the official commentary, a creditor is required to disclose the fees or charges for services it does not require but is aware of under its obligation to provide a good faith estimate of the cost of a loan. Differences between the amounts of estimated charges for such services and the amounts of such charges paid by the consumer do not constitute a lack of good faith, so long as the original estimated charge, or lack of an estimated charge for a service, was based on the best information reasonably available to the creditor at the time the disclosure was provided.

For example, if the consumer informs the creditor that the consumer will obtain a type of inspection not required by the creditor, the creditor must include the charge for that item in the disclosures provided. However, the actual amount of the inspection fee need not be compared to the original estimate when the good faith analysis is performed if the estimate was based on the best information reasonably available to the creditor at the time that it was provided.

The creditor may also be responsible for disclosing charges that are typically part of a loan transaction. For example, if the subject property is located in a jurisdiction where consumers are customarily represented at closing by their own attorney, even though it is not a requirement of the creditor, and the creditor fails to include a fee for the consumer’s attorney, or includes an unreasonably low estimate for such fee in the original estimates, then the creditor is not in compliance with the good faith requirement. Official Interpretations, 1026.19(e)(3)(iii) – 3.

In this case, if the Bank is aware that the consumer will engage an attorney or obtain owner’s title insurance, either from information provided by the consumer or otherwise, then the Bank must disclose the estimated cost of those services as a matter of good faith. If the Bank provides an estimate of the cost of such services based on the best information available to it, it will not be held responsible for any differences between the estimate and the cost paid at closing by the consumer.

If the Bank is not aware that the consumer will obtain a service not required by it, then it does not have to disclose the cost of such a service in the Loan Estimate. There is an element of risk, however, concerning services that are customarily obtained in the jurisdiction where the property is located. Estimates of the charges or fees for such services must also be disclosed in “Other.” The Bank’s due diligence should therefore include a determination of whether there are such services and, if there are, the estimated cost should be disclosed in the Loan Estimate to militate against such risk.

 

 

This entry was posted on Monday, June 26th, 2017 at 1:34 pm.