QUESTION:
TRID has three categories for tolerance. I know that the
categories depend on the lender’s “good faith” in implementing them. What would
constitute “good faith” in these categories?
ANSWER:
Regulation Z, the Truth in Lending Act’s implementing regulation,
establishes tolerance categories limiting the permissible variations between
the estimated amounts and the actual amounts, specifically, a 10% category, an
unlimited variation category, and a zero percent category.
An amount disclosed
on the Loan Estimate is considered in good faith (and in compliance with the
regulation) if the actual charge does not exceed the estimated amount by the
amount permitted by the applicable tolerance rule.
The 10% Category is an estimate of a charge for a
third-party service or a recording fee and is in good faith if:
(1) the aggregate amount of actual charges for third-party
services and recording fees does not exceed the aggregate amount of those
charges disclosed on the Loan Estimate by more than 10 percent;
(2) the charge for the third-party service is not paid to
the creditor or an affiliate of the creditor; and,
(3) the creditor permits the consumer to shop for the
third-party service.
Only these items fit into the 10% category:
(1) fees paid to an unaffiliated third party if the creditor
(i) permitted the consumer to select a settlement service provider not on the
written list of service providers and (ii) disclosed on that list that the
consumer may select the provider; and,
(2) recording fees.
The Unlimited Variation category is an estimate of
the following charges and is in good faith if it is consistent with the best information reasonably available to
the creditor at the time it is disclosed, regardless of the amount of variation
between it and the amount actually charged:
(1) prepaid interest;
(2) property insurance premiums;
(3) amounts placed into an escrow, impound, reserve, or
similar account;
(4) charges paid to third-party service providers for which
the consumer is permitted to shop and that the creditor did not identify on the
written list of service providers; and,
(5) charges paid for third-party services not required by
the creditor, including services provided by affiliates of the creditor.
Differences between the amount of these charges disclosed in
the Loan Estimate and actual charges do not constitute a lack of good faith so
long as the original estimated charge, or lack of an estimated charge for a
particular service, was based on the best information reasonably available to
the creditor when the Loan Estimate was provided.
The Zero Percent category is for all other charges and are
in good faith only if the actual charge does not exceed the estimated amount.
These include, but are not limited to, fees paid to the creditor, fees paid to
the mortgage broker, fees paid to an affiliate of the creditor or mortgage
broker, fees paid to an unaffiliated party if the creditor did not permit the consumer
to shop for a third-party settlement service provider, and transfer taxes.
An estimate of the following charges is in good faith if it
is consistent with the best information reasonably available to the creditor at
the time it is disclosed, regardless of the amount of variation between it and
the amount actually charged:
(1) prepaid interest;
(2) property insurance premiums;
(3) amounts placed into an escrow, impound, reserve, or
similar account;
(4) charges paid to third-party service providers for which
the consumer is permitted to shop and that the creditor did not identify on the
written list of service providers; and,
(5) charges paid for third-party services not required by
the creditor, including services provided by affiliates of the creditor.
Differences between the amount of these charges
disclosed in the Loan Estimate and actual charges do not constitute a lack of
good faith so long as the original estimated charge, or lack of an estimated
charge for a particular service, was based on the best information reasonably
available to the creditor when the Loan Estimate was provided.
Jonathan Foxx
Managing Director
Lenders Compliance Group
