One of the significant changes in TRID 2.0 relates to how the “best information reasonably available” can affect calculating good faith and, ultimately, reimbursements. Under Regulation Z, creditors are required to disclose fees that are anticipated for a loan transaction in “good faith.” Good faith depends on a number of factors (such as the type of fee and whether the fee goes to the creditor or their affiliate) and basically is calculated in one of three “buckets” as follows: The zero tolerance bucket, the 10% bucket, and the unlimited bucket. While these tolerance “buckets” have been around for since the inception of TRID, TRID 2.0 has placed an even greater emphasis on disclosing fees based on the best information reasonably available.
Defining the Best Information Reasonably Available
The phrase “best information reasonably available” is used in the integrated disclosure rules many different times. While this phrase isn’t as clearly defined as it could be, it generally means that when a fee or charge is disclosed (on an LE or CD) that the creditor will be considered to have disclosed that fee in good faith if the fee was disclosed with the best information reasonably available. Said another way, creditors must do their best to disclose fees based on the information they have and know about at the time they provide disclosures. One example used in the commentary is that a creditor is not permitted to provide an “unreasonably low” estimate for property taxes when they have knowledge that the actual taxes will be a much greater amount - such as could be the case when a new home is being constructed where the prior taxes were based on only the value of the land the new home sits on. Another example from the commentary to 1026.19 of Regulation Z relates to the use of a settlement agent. The example explains that if a customer tells a creditor that they plan to use their own settlement agent but the creditor provides a quote of an unreasonably low amount - such as $20 when the average going rate is $150 - then the fee is not considered to be disclosed with the best information reasonably available. The bottom line is that each creditor must make a good faith effort to provide an accurate estimate of fees.
Best Information Reasonably Available for Initial Disclosures
One of the main clarifications in TRID 2.0 is that if a consumer is permitted to shop for a third-party service, the “best information available” standard now applies even if the consumer selects a provider not listed nor disclosed on the written list of settlement service providers. This applies when the charge is paid to the creditor’s affiliate, an unaffiliated third party, and even applies to property taxes. This means that if a creditor has information - like property tax or homeowners insurance information - when they issue the Loan Estimate, but the creditor fails to include that information on the LE, then the creditor is going to have to reimburse the customer for the difference of the actual amount of fees/charges.
The preamble to the 2018 TRID amendments (TRID 2.0) explains that the reasonably available standard applies to the following five categories of fees that would otherwise be subject to the unlimited tolerance bucket:
Prepaid interest
Property insurance premiums
Amounts placed into an escrow, impound, reserve, or similar account
Charges paid to third-party service providers selected by the consumer
Charges paid for third-party services not required by the creditor
The bottom line is that all charges/fees disclosed must be provided with the “best information reasonably available” in order to utilize applicable good faith (tolerances).
The revised Commentary to 19(e)(3)(iii) under TRID 2.0 now reads as follows:
3. Good faith requirement for property taxes or non-required services chosen by the consumer. Differences between the amounts of estimated charges for property taxes or services not required by the creditor disclosed under § 1026.19(e)(1)(i) and the amounts of such charges paid by or imposed on 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 particular 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 under § 1026.19(e)(1)(i), but the actual amount of the inspection fee need not be compared to the original estimate for the inspection fee to perform the good faith analysis required by § 1026.19(e)(3)(iii). The original estimated charge, or lack of an estimated charge for a particular service, complies with § 1026.19(e)(3)(iii) if it is made based on the best information reasonably available to the creditor at the time that the estimate was provided. But, 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, and the creditor fails to include a fee for the consumer's attorney, or includes an unreasonably low estimate for such fee, on the original estimates provided under § 1026.19(e)(1)(i), then the creditor's failure to disclose, or unreasonably low estimation, does not comply with § 1026.19(e)(3)(iii). Similarly, the amount disclosed for property taxes must be based on the best information reasonably available to the creditor at the time the disclosure was provided. For example, if the creditor fails to include a charge for property taxes, or includes an unreasonably low estimate for that charge, on the original estimates provided under § 1026.19(e)(1)(i), then the creditor's failure to disclose, or unreasonably low estimation, does not comply with § 1026.19(e)(3)(iii) and the charge for property tax would be subject to the good faith determination under § 1026.19(e)(3)(i).
4. Bona fide charges. In covered transactions, § 1026.19(e)(1)(i) requires the creditor to provide the consumer with good faith estimates of the disclosures in § 1026.37. Section 1026.19(e)(3)(iii) provides that an estimate of the charges listed in § 1026.19(e)(3)(iii) is in good faith if it is consistent with the best information reasonably available to the creditor at the time the disclosure is provided and that good faith is determined under § 1026.19(e)(3)(iii) even if such charges are paid to the creditor or affiliates of the creditor, so long as the charges are bona fide. For determining good faith under § 1026.19(e)(1)(i), to be bona fide, charges must be lawful and for services that are actually performed.
Best Information Reasonably Available for Revised Disclosures
TRID 2.0 also clarifies that a creditor can provide a revised LE for either 1) informational purposes or 2) to reset tolerances. In either case, the information on the LE must be based on the best information reasonably available to the creditor. This means that all revised disclosures must include updated fees that the creditor has knowledge of. As one might imagine, this could be complicated for some processing departments and, thus may ultimately result in a reduction of courtesy/informational LEs as inaccurate information on such disclosures will result in possible rebates to customers.
Due to this, it is important for creditors to remember when a revised loan estimate is required. As we’ve said before, technically speaking, a creditor is permitted to calculate good faith off of revised disclosures if one of five reasons (some of which have subparts) found in 1026.19(e)(3)(iv)A through C and E and F. This includes "changed circumstances" (A & B) but also includes revisions requested by the consumer (C), the expiration of the estimate of fees (E) and a delayed settlement date on construction loans (F). These reasons permit a creditor to use a revised estimate to calculate good faith only if the creditor chooses to increase their applicable charges, meaning its not actually required (unless the creditor chooses to increase their applicable fees). The only time creditors are technically required to redisclose a Loan Estimate is if it initially had a floating rate and subsequently locked it (i.e. 10262.19(e)(3)(iv)D and the section on "interest rate dependent charges").
The bottom line is that creditors must ensure that each revised estimate contains the best information reasonably available to the creditor at the time the estimate is provided. For this reason, creditors may consider limiting the disclosure of courtesy, voluntary, or informational Loan Estimates as these non-required disclosure could lead to reimbursements under TRID 2.0.
The commentary to 19(e)(3)(iv) under TRID 2.0 now reads as follows:
5. Best information reasonably available. Regardless of whether a creditor may use particular disclosures for purposes of determining good faith under § 1026.19(e)(3)(i) and (ii), except as otherwise provided in § 1026.19(e), any disclosures must be based on the best information reasonably available to the creditor at the time they are provided to the consumer. See § 1026.17(c)(2)(i) and comment 17(c)(2)(i)-1. For example, if the creditor issues revised disclosures reflecting a new rate lock extension fee for purposes of determining good faith under § 1026.19(e)(3)(i), other charges unrelated to the rate lock extension must be reflected on the revised disclosures based on the best information reasonably available to the creditor at the time the revised disclosures are provided. Nonetheless, any increases in those other charges unrelated to the rate lock extension may not be used for the purposes of determining good faith under § 1026.19(e)(3).
Best Information Reasonably Available for 10% Good Faith
One of the biggest challenges relating to the “best information reasonably available” and how it relates to good faith, is how this provision applies to the 10% bucket. To explain, the “best information reasonably available” standard results in a zero (0%) tolerance when a charge or fee is not disclosed or disclosed in good faith when it applies to two of three sections of Regulation Z: 1026.19(e)(3)(i) which covers the items subject to zero tolerance and 1026.19(e)(3)(iii) which covers the items subject to unlimited tolerance. In other words, if an item that is subject to either the zero tolerance bucket the unlimited tolerance bucket is not disclosed using the best information reasonably available, that charge is subject to zero tolerance - meaning the entire fee must be refunded.
The challenge with this rule is that the zero tolerance standard only applies to these two (out of three) buckets.
The 10% bucket - or 1026.19(e)(3)(ii) of Regulation Z - treats fees differently than the other two buckets when the fee is not disclosed using the best information reasonably available. Specifically, when a fee or charge that is subject to the 10% tolerance level (1026.19(e)(3)(ii)) is not disclosed with the best information reasonably available, the determination of whether the fee is in good faith depends on whether the sum of all charges subject to the 10% bucket - i.e. 1026.19(e)(3)(ii) - increase by more than 10 percent in aggregate. In other words, if a charge or fee subject to the 10% tolerance level was not disclosed based on the best information reasonably available, the tolerance calculation (i.e. good faith) is determined the same way it always has been - by looking at the aggregate change to all of the combined fees in the 10% level.
For example, the commentary provides an example where a creditor includes a $300 estimated fee for a settlement agent (which is subject to the 10% bucket) and the sum of all charges in the 10% bucket is an amount of $1,000. In this case, the creditor does not violate the good faith standard if the actual settlement agent fee exceeds the estimated settlement agent fee by more than 10 percent - or $330 - provided that the sum of all such actual charges does not exceed the sum of all such estimated charges by more than 10 percent, or $1,100.
Another example in the commentary assumes that the sum of all estimated charges in the 10% bucket equals $1,000. If the creditor does not include an estimated charge for a notary fee, but a $10 notary fee (subject to the 10% bucket) is charged to the customer, then the creditor does not violate the good faith standard if the sum of all amounts charged to the consumer in the 10% bucket does not exceed $1,100, even though an individual notary fee was not included in the estimated disclosures.
The commentary to 1026.19(e)(3)(ii) expands on this as follows:
"2. Aggregate increase limited to ten percent. Under § 1026.19(e)(3)(ii)(A), whether an individual estimated charge subject to § 1026.19(e)(3)(ii) is in good faith depends on whether the sum of all charges subject to § 1026.19(e)(3)(ii) increases by more than 10 percent, regardless of whether a particular charge increases by more than 10 percent. This is true even if an individual charge was omitted from the estimate provided under § 1026.19(e)(1)(i) and then imposed at consummation."
