Creditors are held to a good faith standard on what fees can be increased on the Loan Estimate (LE) and Closing Disclosure (CD). This standard varies according to the type of fee increase and is separated into three different tolerance “buckets.”
Examples of fees included under unlimited tolerance: prepaid interest and property insurance premiums.
This bucket can be confusing because it is also referred to as “no tolerance,” which sounds a lot like “zero tolerance.”
Think of it this way: unlimited tolerance (also known as no tolerance) refers to the fact that the tolerance doesn’t exist. “No/unlimited tolerance” means “no TRID violation.”
One caveat: Fees must be disclosed using the best information available at the time, which gives creditors a lot of leeway as long as they don’t intentionally “pad” fees in an effort to avoid a tolerance violation later. The fees must reflect what the creditor believes the fees will actually be. According to the CFPB, creditors can rely on “other parties in obtaining the information, including, for example, the settlement agent.”
Examples of fees included under 10% tolerance: recording fees and third-party services.
In this TRID tolerance bucket, all fees are added up. The total disclosed on the LE compared to what is disclosed on the CD must not be greater than 10%.
A single fee in this bucket may increase substantially, but as long as it doesn’t add up to more than 10% of the total fees, it won’t cause a tolerance violation.
Here’s how a 10% tolerance violation could apply:
- A lender issues an LE with a total of $1,500 in fees in the 10% category, making the amount by which the fees can increase $150. (So, $1,650 is the threshold.)
- One shoppable third party increases its fee by $100, and another by $150, making $1,750 the total amount.
- The LE is now considered “out of tolerance” by $100.
In some cases, TRID allows the lender to re-issue the LE before closing to avoid a tolerance violation and re-setting the base cumulative fee. But lenders must keep in mind that the LE must be issued seven days before closing, so a revised LE may conflict with the set closing date.
Examples of fees included under zero tolerance: any origination fees.
With Zero Tolerance, fees cannot increase from the LE to the CD without being a violation. This is a creditor’s most restrictive category, and the fees that funnel into it must be handled with extreme care in order to avoid a violation.
The reason for zero tolerance’s restrictiveness is, the lender controls this particular bucket’s fees, so they should be able to pinpoint the charges easily.
*The one exception is when a trigger event under the law causes a revised LE, resulting in a fee increase.