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Thursday, January 16, 2014

New Fee Tolerance Requirements for the RESPA/TILA Disclosure

QUESTION:  
Does the final RESPA/TILA integration rule (the “Rule”) under Regulation Z (TILA) released by the CFPB on November 20, 2013 change the current fee tolerances under Regulation X (RESPA)?

ANSWER: 
Yes. Initially, the Rule does not refer to “tolerance” but the concept remains intact. In addition, the Rule refers to the document which will be provided to the borrower within three days of application as a “Loan Estimate” and not a GFE.

The most substantial change in this regard is that the Rule expands upon those fees where no increase is permitted (the “zero tolerance” bucket) to include the following:  (a) all charges paid to an affiliate of the lender or broker; (b) all charges for required services where the lender does not permit the borrower to choose the service provider (i.e., appraisal, credit report); and (c) “lender credits”.  Transfer taxes and charges paid to the lender or broker for their own services remain as fees where no increase is permitted.

Currently, RESPA permits lenders to modify zero tolerance charges on the GFE and to provide a revised GFE if there is a “changed circumstance”. The Rule also sets forth precise situations where zero tolerance fees may be modified, but these situations do not mirror “changed circumstances” as currently defined in RESPA. Under the Rule charges may be increased if (a) the borrower requests a change that affects fees previously disclosed [Part 1026.19(e)(3)(iv)(C)]; (b) the Loan Estimate expires, in that no intent to proceed is indicated by the borrower within 10 days of the lender providing the Loan Estimate [Part 1026.19(e)(3)(iv)(E)]; (c) the interest rate is locked [Part 1026.19(e)(3)(iv)(D)]; or (d)  there is a “changed circumstance” affecting a settlement charge. 

“Changed Circumstance” means:

(1) An extraordinary event beyond the control of any interested party or other unexpected event specific to the consumer or transaction;

(2) 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; or

(3) New information specific to the consumer or transaction that the creditor did not rely on when providing the original Loan Estimate. [Part 1026.19(e)(3)(iv)(A)]

As required today, only those charges which increase as a direct result of the reason for the change can be increased in the revised Loan Estimate.

Now that the countdown to QM has passed, we have a new countdown to August 1, 2015 (the effective date of the Rule).

Michael Barone
Director/Legal & Regulatory Compliance
Lenders Compliance Group