How to measure TRID 10% tolerance?
The TRID tolerance limitations are calculated in the aggregate, and this may lead to an interesting strategic decision.
When TRID takes effect on Oct. 3 (a Saturday), we'll be limited to a 10% tolerance limitation on certain fees. What fees specifically? Maybe that should be it's own newsletter ... But generally speaking, recording fees will always fall in the 10% category. Additionally, fees paid to 3rd parties for required services may fall into the 10% category depending on whether your institution lets borrowers "shop" for that service. This would apply to things such as fees paid to closing attorneys, lender's title policies, even pest or home inspection (if required by the lender).
Here's a chart to explain how a fee such as the closing attorney fee may be classified differently based on the specific scenario.
But back to the point of the newsletter ... how do we calculate the 10% tolerance?
Calculating 10% Tolerance
When determining if a fee that falls under the 10% category has exceeded the 10% tolerance, we must calculate this in the aggregate. In other words, it doesn't matter if any individual fee exceeds 10%, but instead whether if all of the fees subject to the 10% tolerance--together--have increased by more than 10%.
We do not calculate the 10% tolerance per individual fee. We also have to remember to calculate the 10% tolerance using only fees subject to the 10% category--not for fees that happen to fall into 0% or Unlimited categories.
Examples
Assume for our examples that we have a loan where there are three (and only three) fees that are subject to the 10% category-- (1) recording fees, listed at $100 in the Loan Estimate, (2) the closing attorney fee, listed at $500 on the LE, and (3) the lender's title policy, listed at $400. Note: Fees (1) and (2) are subject to a 10% tolerance because the borrower had the right to shop but selected one of the lender's recommended attorneys (did not actually exercise the right).
Suppose the recording fees increase by $95. Even though that individual fee increased by much more than 10%, there is no tolerance violation if the other fees stayed the same (or decreased). There was no 10% violation in the aggregate.
Suppose all 3 fees stay the same, but the closing attorney adds a courier fee of $50. This would be subject to 10% tolerance. There would be no tolerance violation here even though an entirely new field was added.
Let's change the example slightly. Suppose the borrower exercises her right to shop for the closing attorney. Now the closing attorney and lender's title policy fees will be subject to an Unlimited tolerance--not 10%.
1. Suppose the recording fees increase by $95 now. Now we have a violation of the 10% limitation! Why? Because we can't use the other fees towards the aggregate calculation of 10%--they are no longer 10% fees!
Strategic Plans
So the question presented is this: Do you want to have a very big list of settlement service providers, or a very small list? On one hand, having a small list makes it likely the loan officer will recommend (or the borrower will pick) a provider that is NOT on the list, causing that fee to fall into the Unlimited Tolerance category. Great news! Right? Well, there's a tradeoff. You may want to have fewer fees fall into the Unlimited category (if you did, you'd have a larger list). Why would you want more fees to fall into the 10% category, rather than the Unlimited category? Having more fees to add into the 10% category may give you more flexibility overall, as seen in the examples above. But this will vary by institution- there does not appear to be one correct answer.
In other news:
Did you know IKEA represents 1% of the entire world's consumption of wood? Maybe that's why it just purchased 83,000 acres of forest...
Need some work on your golf game? Here's a short informational video from The Honeymooners that comes recommended from my colleague Paul Bates ... best part starts at 2:20. Helloo ball!
Need a refresher on when you're required to cancel PMI? Here's very recent guidance from the CFPB
You've heard people recommend surrounding yourself with good people? Did you know there's real science around that? In Social Intelligence, Dr. Daniel Coleman explains that "we create one another." "To a surprising extent, then, our relationships mold not just our experience but our biology. The brain-to- brain link allows our strongest relationships to shape us on matters as benign as whether we laugh at the same jokes or as profound as which genes are (or are not) activated in T-cells, the immune system's foot soldiers in the constant battle against invading bacteria and viruses." I feel very lucky to be surrounded by the people we work with in this industry. Willing to bring you along, instead of get ahead at your expense. Willing to give you an opportunity, but intolerant of incompetence or lack of effort. People who constantly support, and always challenge you.
"It is better to deserve honours and not have them than to have them and not to deserve them."
- Mark Twain
![endif]--
Thanks so much for reading our weekly newsletters. We're not always going to be perfect, but because we always do our best and try not to overpromise, we hope that we're always going to be trustworthy. Your calls and e-mails are very helpful - please keep contributing.
**These are our opinions. We're not authorized, or willing, to express those of others.**