First I would point out that it is correct that there’s a 10% tolerance bucket, and it’s similar to what you have under RESPA today. The way the rule works is those charges can increase up to 10% without any type of tolerance violation. You can go to closing and if the sum of those charges has increased by 9.5%, you charge the consumer 9.5% more and there’s no tolerance violation. That much is easy. Where this rule really gets tricky is when you get into re-disclosure and re-baselining in this category, especially when you have changes to charges that are within this 10% tolerance bucket at different times. Changed circumstances is one category of events that allows you to redisclose. There are changed circumstances affecting settlement charges and affecting eligibility. Then there are other types of changes—borrower requested changes just being one of them—but also rate lock related changes, expiration and so on. There a tie to the 10% category for changed circumstances affecting settlement charges which is very clear and eligibility which is less clear (but supported by commentary to the rule). In both of those instances if you’re relying on changed circumstances as an event that allows you to re-disclose a charge, then it is correct that the rule says you can only re-disclose and reset your baseline when the sum has exceeded 10%. If you’ve got four different changed circumstances each of which bring the total up, lets say 3% and you don’t hit the 10% tolerance until the 4th one, you can’t reset your baseline until that happens, if the reasons for the increase are changed circumstances. [Note: the rule does allow information redisclosures to be provided to the consumer when there are change events that do not give rise to a rebaseline].
However, borrower requested changes, which are also mentioned in this question, are not tied to the 10% category. If you actually look at the rule, it’s section 19(e)(3)(iv), which is where these timing mechanisms are that’s where you’ll find these change events. The changed circumstances do depend on the 10% category and do require an aggregate increase in order to re-baseline, but borrower requested changes do not. So a borrower, could request a change that causes the 10% category charges to go up by 5% and in that instance the charges could be re-disclosed and the baseline reset because it’s not changed circumstances. If you look at the mechanics of the rule, the first two categories directly reference and incorporate the 10% bucket, the borrower requested change category does not.
This transcript has been edited from the May 2015 round table discussion for clarity and completeness.
Answered By: Andy Arculin