Yes, there is a requirement — as is the case today — to provide a list of settlement service providers. It’s an important point when you’re talking about the tolerances. The zero tolerance bucket applies to services where the borrower dictates both the service and the service provider. Those are zero tolerance fees. The 10% tolerance applies when you have a lender-required service but the borrower has the ability to choose the service provider. If the borrower actually does choose the service provider, then the fee for that service goes in the “no tolerance” bucket (in other words, the category of things to which tolerances do not apply).
So what distinguishes services the consumer can choose from services they cannot choose? Well, first you have to provide a list of settlement service providers for services the borrower can choose. There is a model form for this in the rule. It’s not fancy, but headings match the format of the Loan Estimate. With that form, you must identify at least one available provider for each service for which the borrower is permitted to shop. And you must allow the borrower to choose someone who is not on the list. If you give them a closed list — and by that I mean they can pick anybody they want as long as it’s somebody on your list — then that is not considered allowing them to shop and the zero tolerance rule still applies. Instead, you need to give them both the opportunity to choose somebody on your list, but also the opportunity to go out and choose somebody of their own, subject to reasonable requirements. For example, you can require appraisers be properly licensed and so on and so forth. But this requirement was designed to create an incentive to allow consumers to shop.
So yes, there is a requirement to provide a list of settlement service providers and the provision of that list is very important in terms of how you calculate your tolerances. You’re going to need to have names on hand to populate that list, track who was on the list that you provided to the borrower, and then track who they actually chose because that’s going to dictate which tolerance bucket the fee goes into.
Note: This transcript has been edited from the February 2015 TRID webinar for clarity and completeness.
Answered By: Ben Olson