Understanding TRID Fee Cures

Also known as “Know Before You Owe,” the TILA-RESPA Integrated Disclosure (TRID) rule requires mortgage lenders to communicate the costs and fees associated with purchasing a home via standardized Loan Estimate and Closing Disclosure forms. TRID is important to supporting a healthy housing economy because it provides consumers with the information they need to make informed home financing decisions — a prerequisite to successful, sustainable homeownership. At the same time, TRID compliance can be a sore spot for even the most diligent, well-intentioned lenders, as the rule’s complexity can be onerous and violations can be costly.

Below is an overview of TRID fee disclosure requirements, as well as common challenges lenders face in meeting them, where fee cures come into play, and how you can help support TRID compliance and reduce fee cures.

Fee tolerances and cures

Under TRID, lenders are held to a good faith standard in their fee disclosure practices — a standard that is measured by comparing the fees disclosed to borrowers against the fees paid by borrowers. TRID sets tolerances for how much fees can change (if at all) after they have been disclosed, which fall into three categories: zero tolerance, 10% tolerance and no tolerance.

Zero tolerance fees

Fees that fall into the zero tolerance category should not increase after the delivery of the Loan Estimate. Unless an event that triggers a revised Loan Estimate occurs, increases to fees in this category result in a tolerance violation. To amend a tolerance violation, lenders must pay borrowers the difference between the amount they were quoted and the amount they were charged. This payment to borrowers is known as a “fee cure.”

Lenders are held to strict standards on this category of fees because, with the exception of transfer taxes, they fully control the fee amounts and service provider selection for these line items. Fees that fall in the zero tolerance category include, but are not limited to, loan origination fees, discount points, transfer taxes, appraisal fees and credit report fees, among others.

10% tolerance fees

Fees that fall into the 10% tolerance category include third-party services that borrowers can shop for, including home inspectors, and other expenses, such as county recording, title and settlement fees. Unlike zero tolerance fees which are assessed individually, 10% tolerance fees are assessed as a cumulative category. If the sum of all fees in the 10% tolerance category increases by 10% or more after delivery of the Loan Estimate, then the lender is required to pay the difference in fee cures.

No tolerance fees

Lenders may increase fees that fall into the no tolerance category as long as the fees originally disclosed were based on the best information reasonably made available at the time. Examples of no tolerance fees include homeowners insurance, property tax and homeowners association (HOA) fees, among others.

Consequences of fee tolerance violations

Quoting fees within permitted tolerances is an ongoing challenge for mortgage lenders that requires continuous monitoring, staff training, and robust technology and processes in place. Depending on the strength of a lender’s disclosure systems, fee tolerance violations can lead to liability issues.

Fee cures can be very costly for the lender. ICE conducted an analysis on nearly 90,000 loans from eight lenders over a six-month period to find out how often fee cures happen and to quantify their expense to lenders. The study found that fee cures contribute considerably to the cost of loan production — an average of $1,225 per loan. By mitigating fee cures, lenders in the study could recover more than $1.2 million for every 1,000 loans produced.

Fee tolerance violations can sometimes delay closing until documents can be redrawn and reimbursements are distributed. Even in instances where fee tolerance violations do not necessitate a postponed closing, they make for messy transactions that are often stressful for borrowers and settlement agents. Further, high rates of fee tolerance violations invite regulatory scrutiny.

Strategies for reducing fee cures

ICE Fee Solutions provides a powerful, first line of defense to help protect lenders from costly fee cures and reduce costs throughout the fee management process, including reducing zero- and 10% tolerance fee cures and supporting TRID compliance. We also offer accurate tax data to help reduce errors on property tax estimations and closing disclosures.

ICE Fee Solutions streamlines and automates the closing-fee process to help prevent costly cures by providing accurate, near real-time Loan Estimate and Closing Disclosure tax calculations. Our solutions also provide recording and transfer taxes, lender title premiums, owner title premiums, endorsements, settlement fees, inspection fees, and lender and appraisal fees. Schedule a demo to learn more about how ICE Fee Solutions can help you reduce TRID fee cure losses and maintain TRID-compliance to meet the three-day disclosure requirement.