One of the biggest changes in transitioning to the new Loan Estimate and Closing Disclosure forms involves the layout used to compare the Loan Estimate charges to the actual charges on the Closing Disclosure.
There are three separate categories for disclosing the Loan Costs on the second page of the Closing Disclosure. They include:
Section A – “Origination Charges”;
Section B – “Services Borrower Did Not Shop For”; and,
Section C – “Services Borrower Did Shop For”.
While Section A fees will have a zero tolerance, Section B and C fees could have a zero tolerance as well. Yep, you heard that right. This means that you can’t use Sections B or C to independently determine tolerances. Why? Section B on the Closing Disclosure can include fees with either a 0% or 10% tolerance and Section C can include fees with either a 0% or unlimited tolerance.
Here’s the breakdown of the fees listed in Sections B and C of the Closing Disclosure with respect to tolerances:
1. Required third party services where the bank selects the provider are subject to a 0% tolerance. (Closing Disclosure Section B)
2. Required third party services where the applicant is permitted to shop, a list is provided and the applicant selects a provider included on the list, are subject to a 0% (if the provider is an affiliate) or 10% tolerance. (Closing Disclosure Section B)
3. Required third party services where the applicant is permitted to shop, a list is provided; however, the applicant doesn’t shop (i.e. the bank selects the provider because the applicant doesn’t care or won’t), will be subject to a 0% (if the provider is an affiliate) or 10% tolerance. In other words the applicant was allowed to shop but didn’t. (Closing Disclosure Section B)
4. Required third party services where the applicant is permitted to shop, a list is provided and the applicant selects a provider not included on the list, are subject to a 0% (if the provider is an affiliate) or unlimited tolerance. (Closing Disclosure Section C)
Keep in mind, the Loan Estimate shows us whether shopping is possible; the Closing Disclosure shows us, at least to an extent, whether shopping actually occurred. See our March newsletter as we discuss shopping, disclosures and the associated tolerances in more detail.
Diane joined Banker’s Compliance Consulting with over 10 years of compliance experience and over 15 years of experience within the financial industry. Diane is a Certified Regulatory Compliance Manager (CRCM) and has a Bachelor’s Degree in Sociology with a concentration in Criminal Justice. She is a graduate of the Schools of Banking Compliance School and has participated in various other training opportunities throughout her career. Diane understands firsthand the struggles banks face in building and maintaining successful compliance programs. Her experience and common sense approach to consumer compliance is a great asset to our clients.
Diane and her husband have two kids who keep them busy. She enjoys running and other sports and is a big Bugs Bunny fan! She’s a bit crazy in that she does enjoy reading some of these regulations and she’s a “crazy cat lady!” Her cat tales are hilarious!