The loan estimate and shopping.
I want to talk about third-party services required by the lender, where the lender’s given the opportunity to shop and how that affects the Loan Estimate.
The first thing is those fees have to be disclosed in Section C on page two of the Loan Estimate, Services You Can Shop For. The tolerance that’s going to be provided by these fees is going to potentially be an unlimited tolerance, if the applicants go and pick their own provider, not on the shopping list that you provide them. Or, it could be a 10% tolerance if they pick the person on the shopping list you provide; or they say, I don’t care and the bank takes and picks the provider for them.
There is one other exception to the tolerance and that is if there’s an affiliate involved. That would be a TRID affiliate where there’s common ownership or control of 25% or more, then it can actually be a zero percent tolerance. With third-party services required by the lender where we give the opportunity to shop, one of the things you need to know is potentially, all three tolerance buckets are in play; the zero percent bucket if the applicants pick an affiliate, 10% if they pick your provider, or they say that they don’t care and the bank picks the provider, or the unlimited tolerance, you gave them a list and they picked somebody not on the list.
Speaking of the list, where does that come into play? If you’re going to let the applicants shop, or give them the opportunity to shop for third-party services required by the lender, you have to give a list. That list also has to be compliant. To be compliant, you have to have the contact information for the provider that you’re recommending, but it also has to be a provider that’s likely to be able to provide the service in connection with the transaction.
I like to say it this way, it’s got to be transaction-specific. What’s that mean? It needs to be transaction-specific based on either the borrower’s location or the property location. How does that work? It’s the borrower’s location if, for example, you’re going to require them to have a third-party settlement agent. You’re going to want to make sure that the settlement agent is somebody that’s in the area where the borrower’s going to be able to conduct the settlement.
If it’s property-specific, it might be I’m buying a property in Florida, but I don’t live there yet. You can’t use a local surveyor in, let’s just say, Nebraska as your recommended provider because they’re probably not licensed in the state of Florida. So, we’re going to have to go out and do our homework and find a provider in the state of Florida that’s licensed and can provide that service.
Transaction-specific is based on either the borrower’s location or the property location. We see a lot of, what I call, “canned” lists, where everybody gets the same list. That’s not how it’s supposed to work. It’s supposed to be specific to the transaction.
Hopefully, those are a few notes on third-party services required by the lender, where you’re going to give applicants the opportunity to shop. This is just one of the many things that we’re going to be covering in our upcoming webinar, “TRID: How to Complete the Loan Estimate”, line by line. We will also cover the shopping requirements and revised disclosures.
And, as we always do, in a plain English setting. Reserve your seat today. Thank you!
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!