During our Virtual Live Conference we had a section on TRID Trouble Spots. Join Jerod as he talks about Closing Disclosure Accuracy.
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Let’s talk about those tolerances. The first tolerance is the 0% category. Your fees, investor fees, and transfer taxes. Do me a favor. Circle transfer taxes in number five. Watch out for that one. It sneaks up on people. It’s not something that you run into often. What generally happens with transfer taxes, when the error occurs, is the property is located in an area that the lender is not familiar lending in. So maybe your customer’s local, but they’re buying that vacation home in another state, another county, and you’re not familiar with the transfer tax rules in that area. You have to be very careful you don’t miss something here because that’s a zero tolerance item and some of the biggest tolerance cures that I’ve ever seen, that our team has seen, has to do with transfer tax issues and failure to do the homework to get them right on the disclosure.
Number six talks about third-party services. In addition to your fees, investor fees, and transfer taxes, third-party services required by the lender where you pick the provider and prevent shopping, that’s number six. The first three are absolute: credit reports, flood determinations, and appraisals. You would never let anybody shop for those because there’d be a conflict of interest. There’s an independence issue there. The title service is one. Be careful with that one. When I’ve had people tell me that they don’t let borrowers shop for title services, the first thing I ask the bank is this: does that mean that the bank shows up when the purchase agreement’s signed? Because usually it’s by way of the purchase agreement that the title company is identified, and the lender usually goes, “Oh, don’t be silly. We don’t attend those. That’s between the borrower and the seller and their realtors.” Well, then, you’re letting them shop, yet you’re telling them they can’t. Why would you say it’s a service that you’re picking the provider on? Make sure you get it in the right space.
Let’s go back to those previous three. The credit report and the flood determination, they’re absolute. They’re pretty easy to identify those fees. That appraisal, I want to use that as an example here to demonstrate this good faith standard. Because of other rules and truth in lending, okay, you’ve probably already done the work necessary to put together an approved appraisers list. You’ve also probably done the work necessary to find out what they typically charge. And so for a typical one to four family dwelling in the areas where you normally do business, you can probably say that whatever number of appraisers that are on your list, the range is three to $500, whatever it is in your neck of the woods, but mine’s going to be three to $500.
Because of the independence issues in other rules, the lender can’t pick the appraiser. Neither can someone who’s associated with the lender. So we have to make sure that we get a good faith number, but we don’t have a conflict of interest. Is it okay for the lender to take the approved appraisers list and the range three to 500 and say we’re just going to put 500 on every loan estimate that’s secured by a typical one to four in our typical area? And the answer is yes.
But here’s what it means. It means that some of the time you have to hit 500. Some of the time you have to hit the low end at 300. If you never hit the high end, what it appears, then, is that your loan estimates are padded, and you’re not meeting the good faith standard. You can’t arbitrarily inflate the number to make it come in less so as not to have a tolerance issue.
Now, the other thing that comes into play here with the appraisal is this. I’m going to have you write down two things down at the bottom of page 12. They’re not specific to the appraisal. They’re more general, but I’m going to give you an appraisal example to illustrate them. The first thing is, what did you know, and when did you know it? What did you know, and when did you know it? The second thing I’m going to give you is details matter. Tell the story. Details matter. Tell the story.
Now, here’s the story. When it comes to the appraisal, I mentioned that you can probably put the high end number on your approved appraisers list for the typical one to four in the typical area. What happens, though, before the loan estimate goes out, you know the property is not typical? It’s not in your area. Then your homework bar has just been raised. Rather than just going off your approved appraisers list, if you know that the appraisal is going to be on a property that’s no longer typical, maybe it’s a mansion, maybe it’s instead of on a quarter of an acre of land, it’s on 80 acres of land. Maybe it’s in a different state, in a different county. That comes back to what did you know, and when did you know it? If you knew the information about the application, about the property before the disclosure goes out, you didn’t account for it, it will not be allowed to be grounds for a changed circumstance later on. You need to have accounted for it before the disclosure goes out.
Jerod is the leader of Banker’s Compliance Consulting’s training productions. He is a nationally recognized speaker. Whether it’s a conference, seminar, school, webinar, or luncheon, it’s easy to stay engaged when he presents due to the amount of passion and energy he brings to each and every compliance topic. Jerod has spoken on behalf of the American Bankers’ Association, BankersOnline, many state banking associations, private compliance groups, and financial institutions. He is a Certified Regulatory Compliance Manager (CRCM) and BankersOnline Guru.
Jerod likes to spend his time (between reading regulations and producing compliance training!) relaxing at the lake with his wife and three children, following their activities or engaged in something sports related!