What's the penalty for forgetting to disclose a shopping list with the Loan Estimate?
So many times, a rule says what not to do and we're left to wonder, well what happens when that happens? How do we fix this? Well here's one situation where we can give you a clear answer.
This has to do with providing the shopping list of settlement service providers along with a Loan Estimate.
Question:
So if we disclose a Loan Estimate with fees in Section C (services you CAN shop for), then we're required to also disclose a separate list of settlement service providers who are "reasonably available" to provide that service. This list is called a "shopping list" or "SSPL" (short for settlement service provider list).
But WHAT IF we disclose fees in Section B, but fail to disclose the shopping list? What's the penalty? What do we do? If they shop for a service provider which tolerance level do we apply? Where do we disclose those fees on the CD?
Answer:
You might not be in such terrible shape. Read this language from 1026.19(e)(3)(iii) Comment 2. (edited to help read it without looking up all the terms):
If the creditor permits the consumer to shop ... but fails to provide the [Settlement Service Provider List], good faith is determined pursuant to [the 10% tolerance test] instead of [the unlimited tolerance test] regardless of the provider selected by the consumer, unless the provider is an affiliate of the creditor in which case good faith is determined pursuant to [the 0% tolerance test].
So the conservative approach here would be to apply 0% tolerance and disclose applicable fees in Section B on the Closing Disclosure. If the consumer picks a settlement service provider that you regularly work with, maybe this will be the best option.
But if you're comfortable that, besides providing the shopping list, you did allow the borrower to shop for the settlement service, then the cost of your mistake is simply that the 10% tolerance applies (as opposed to the unlimited tolerance). Here you would disclose those fees in Section C. on the CD if they picked their own, or Section B if they used your recommendation after foregoing the right to shop. Either way it seems 10% will apply.
Example:
You originate a loan in Vermont, not something your institution does often. You disclose settlement and title insurance fees in Section C., as you don't work with any closing attorneys in that area. Whether it's due to a computer glitch or human error, no shopping list is disclosed with the Loan Estimate. Despite not having a shopping list, the borrower picks a settlement agent to do the closing and get title insurance. You quoted $800 and $1,000, respectively, on the Loan Estimate for those services. They come in at an actual cost of $980 and $1,200. Those fees are disclosed in Section C on the CD. As far as any tolerance cure, you'll need to apply the 10% test. We'd need to know the other fees to calculate that (because 10% is calculated in the aggregate), but the point is that you're not just accepting a $380 penalty here, just anything over 10%.
In Other News:
Awful news out of Taunton last night. Sounds like we were lucky to have an off-duty sheriff's deputy on the scene to avoid any additional tragedy.
So what does your elder abuse policy look like? I know Director Cordray is saying that the CFPB's March 23rd report on this was only "an extensive set of voluntary best practices" and "are not binding regulations; they are simply suggestions [that the CFPB] urges institutions to consider". But it's hard not to want to put something in place! Advisory available here.
I know life's about taking risks, but imagine turning down a $30 mm buyout as a 14-year old? That's what Taylor Rosenthal ("business man") just recently did as inventor of a first-aid vending machine
Conversation with John on Monday morning:
Me: Took Devyn for Indian buffet on Sunday (her favorite). Was a good choice, not a place many people thought of to take Mom for Mother's Day.
John: Well, maybe a good place to take your Naana.
*silent pause*
John: We should probably end on that note.
Me: Right.
How important is confidentiality in your line of work? In mine, it's paramount. Every financial institution has things it prefers to keep quiet. Some have business processes that set it apart. Others have merger plans. It's not my job to identify those things that a client wishes to keep confidential. I assume everything is confidential without express permission otherwise; It's my job to keep a lid on things.
Every employee has a duty of confidentiality. But as a consultant, ours is much higher because we have the same access to information, but from dozens of institutions.
That means encrypted computers. That means we can't be talking too loudly at the breakfast diner. If we're having a working lunch at The Chateau, we won't use names of people or institutions when discussing problems we're trying to solve. If asked, we won't even say who we're working with or what we're working on, without permission (even when it's obvious). That also means that we can't bend the rules even once - after all, how will you trust me with something confidential if I "made an exception" and shared something with you?
And that extends further than we expect. There was a story once of a consultant (not one of ours), working through a merger of one company. The consultant went home and told his wife about it. His wife shared details with her friend over lunch. Sitting next to them and overhearing all the details? The president of one of the companies. Yikes!
"Every human being that works has to know that what they do matters to another human being. Not just in terms of bringing home a paycheck. I'm talking about the actual work they do. In some way, their work has to make a difference in someone else's life."
- Patrick Lencioni
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