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The allowable tolerance for a fee disclosed by a lender for their specific services, e.g. Application fee, Commitment fee, and for those for the services for which a borrower cannot shop, is pretty straightforward. Once disclosed, these fees may not change unless there is a bona fide (justified) circumstance change that directly affects the specific fee.
Such a change is pretty limited as the lender is expected to know these types of fees before they issue the disclosure. Fees for their services, like the processing or commitment fee, normally should not change after taking an application.
The fee for an appraisal, the credit report and flood certs should remain the same, even in the event of a change in loan type or amount. One exception is the discount charge which could increase if the loan amount is increased.
Sure, there may be some extenuating circumstance that results in an increase in the appraisal or credit fees, but, for the most part, these should remain constant.
So, we come down to the fees disclosed by the lender in Section C. The fees for any services related to or required in connection with the loan for which a borrower may shop. Here lies the potential for a tolerance violation.
If the borrower selects a provider not listed on the Lender’s list of Service providers, then all bets are off and there is no tolerance limit on that fee.
However, when the Borrower chooses a provider for a service from one that is listed on the lender’s list a 10% aggregate fee tolerance limit comes into play. Remember, a lender must provide a disclosure listing at least one provider for each service for which a fee is disclosed in Section C.
The aggregate amount of the fee(s) paid for the services to providers listed on the lender’s list, may not exceed the aggregate amount of such services by more than 10% of those fees initially disclosed in Section C of the Loan Estimate.
For this reason, it is very important that a lender accurately discloses those fees for which a borrower may shop at the amount which would be charged by those providers of such services appearing on their provider list. By doing so, they protect themselves from a future tolerance violation if that provider is selected.
They also can expedite the issuance of their initial Closing Disclosure. By disclosing fees as would be charged by those providers on their list, they are protected from a violation when the borrower chooses that provider.
A lender need not wait to obtain specific fees from a separate provider, chosen by the borrower, which is not of their provider list. The final LE and initial CD may be issued utilizing the fees as originally disclosed on the initial Loan Estimate.
If the borrower selects a provider, not on the lender’s list, the fees can be updated in Section C by the closing agent and a revised CD can be issued to reflect the final charges at closing.
These fees, however, will have no limits. A lender need not worry about what is charged by a provider not appearing on the Service Provider List.
To protect against potential fee tolerance violations, while also expediting the issuance of the initial Closing Disclosure, a lender need only initially disclose the fees for the Section C services that would normally be charged by those providers they disclose to the consumer on their List of Service Providers.
Remember, these fees may only increase, once disclosed, as the result of a bona fide change in circumstances.
Such changes are very limited when it comes to these Section C fees. A change may not be made as the result of erroneously under-disclosing the fee initially. Like the fees in Sections A & B, once properly disclosed, changes should be minimal.
Lend, and disclose, responsibly my friends.
