There are rarely perfect scenarios in real estate lending.  Sure, occasionally a transaction will go as exactly planned, but there are usually one or two quirks in the process that must be addressed to ensure the loan remains in compliance.  One of these quirks I continue to see lenders struggle with is when an appraisal fee is collected before closing, but the actual cost of the appraisal comes in below what the creditor collected.  

When a financial institution provides unnecessary Loan Estimates to applicants, this practice creates significant confusion regarding the “good faith” rules (i.e. the tolerance calculations).  For example, if a Loan Estimate is provided out of courtesy, the fees on the new LE cannot be used for calculating good faith (tolerances) under Regulation Z. This makes it very difficult for creditors, auditors, and examiners, to know which numbers are supposed to be used for good faith purposes. Therefore, it is important for every loan officer and loan processor to fully understand the changed circumstance rules so they know what exact conditions can reset the tolerances for determining good faith under TRID rules.

Section 1026.19(e)(3)(iv)(D) of Regulation Z requires a creditor to provide a revised Loan Estimate within three business days after the date an interest rate is subsequently locked on a loan where an initial LE was issued without a (signed) rate lock agreement in place.  In other words, if a rate was initially floating and is later locked, a revised LE must be provided within three business days of the rate lock.

One of the key provisions of TRID rules relates to the “good faith” requirement, which essentially provides certain tolerance thresholds that must be honored for applicants who are quoted certain fees on the Loan Estimate (LE).  Tolerance requirements actually pre-date TRID but were a big part of the consumer protection requirements of TRID. TRID 2.0 has made two minor revisions to the original rules regarding using a revised estimate in calculating good faith requirements.

As the Loan Estimate (LE) rules have been around for a few years now, there still seems to be some confusion about the good faith requirements in regards to tolerances and cures.  In my experience, much of this confusion is a result of financial institutions reissuing too many LEs and not fully understanding the revised Loan Estimate requirements. The reality is that many financial institutions provide far more revised Loan Estimates than are necessary.  This “overdisclosing” of the LE creates more work for mortgage processors and creates confusion for customers.

Since the inception of TRID, it has not been completely clear for creditors whether they may reset tolerances if a consumer provides an intent to proceed after the 10-business-day period, but within a longer period that a creditor disclosed on the original Loan Estimate.  This confusion is due, in part, by the way the original language of Regulation Z is worded as it…