As part of the application process, a lender must provide a Lender Estimate (“LE”) and a Truth-in-Lending (“TIL”) statement within 3 days of a loan application. Often there is confusion regarding the requirements of these forms. For today’s posting (part 1 of 3), this is a discussion of when an LE is required, its tolerances, and the rules regarding non-compliance.
First, an LE is required when there are 6 items known to a lender. Once the lender is aware of these, an LE must be sent to the consumer. The 6 items are:
- Borrower Name
- Subject Property Address
- Estimated Value of Subject Property for the Loan
- Loan Amount
- Borrower Income
- Borrower Social Security Number
Once this information is available to the lender, the LE must go out within 3 days.
When the LE goes out, there are several categories of fees. Each of these fees have various tolerances. These categories are:
- Fees Paid to the Lender – Zero Tolerance
- Fees Paid to Others at Closing that a Borrower is Not Allowed to Shop for- Zero Tolerance
- Regulatory Fees (State Tax Stamps, etc.) – Zero Tolerance
- Fees Paid to Others that a Borrower May Shop for – 10% Cumulative Tolerance
- Fees Paid for Escrow or Non-Lender Required Items – Unlimited Tolerance
The reasoning behind these fee tolerances are as follows:
- Zero Tolerance – These are items that are under the control of the lender or that the lender is expected to know. Examples would include but not be limited to: Origination Fees; Underwriting Fees; Tax Service Fees; Initial Credit Report Costs; Flood Certifications; State Tax Stamp Fees; etc.
- 10% Cumulative Tolerance Fees – These are fees that a lender should have a good faith effort to have correct, however, due to some uncertainties associated with the type of fees, there is a 10% cumulative tolerance allows. This also can apply to certain government fees such as recording fees which are typically charged “by the page” for recordation. The lender will not know at time of application typically how many pages are going to be recorded. Examples of fees that are part of the 10% tolerance include but are not limited to: Attorney Fees (when chosen from a lender approved list); Title Insurance Fees; Appraisal Fees; Recordation Fees; etc.
- Unlimited Tolerance – Unlimited Tolerance fees are those which the lender has no control over or are borrower discretionary items. For these fees, the lender must provide a good faith effort at an estimate, however, the fees at the time of closing may be for any amount and the lender is not held responsible for their estimate. Examples of these type of fees include: Homeowners Insurance; Property Taxes; Pre-paid Interest on the subject loan; Homeowners Association Fees; Repair Estimates; Escrow items; Homeowners Warranties.
As one can see, there is quite a bit of complexity associated with proper disclosure. In all cases it is best to contact a Loan Officer with Googain for more information and for specific questions regarding fees and disclosures.
This post is part 1 of a 3-part series regarding disclosure regulations for mortgage lending. In part 2, there will be a discussion of the Truth-in-Lending statement; and in part 3, there will be a discussion regarding change of circumstances and non-compliance.