The varying cost of fee compliance errors for lenders

Fee compliance errors, often referred to as "fee cures," occur when disclosed fees on the initial standardized Loan Estimate and Closing Disclosure forms differ from the fee tolerances defined by the TILA-RESPA Integrated Disclosure (TRID) rule. These discrepancies in fees often require costly reimbursement to borrowers on behalf of the lender.

Fee compliance errors can cost lenders over $1M per 1,000 loans, with nearly 40% of loans impacted by tolerance cures, according to our study. One particularly challenging area for lenders is the variability of transfer taxes across jurisdictions. Transfer taxes and recording fees differ drastically by state, county and municipality, complicating compliance.

Extreme differences in transfer taxes

Transfer taxes, often categorized as zero-tolerance fees under TRID, represent a potential hurdle for lenders to cross when closing on a loan. These taxes can vary significantly depending on the jurisdiction, creating unpredictability that often leads to compliance errors.

For example, as mentioned in the National Mortgage News article, Error fees are draining lenders $1M per 1,000 loans, when examining the Los Angeles market on a single day in 2023, the transfer tax rate for home buyers who purchased a property over $5 million went from 0.56% of the valuation or consideration paid to 4% or more. For houses purchased priced at $10 million or more, the percentage went up to 5.5%.

Leah Strommer, Director of Fee Management Solutions at ICE Mortgage Technology, stated in the article, “If I'm getting ready to buy a home, and my transfer tax was quoted to be $49,500 on March 31 of that year, the very next day on April 1, when that ballot went into effect, I'm going to be asked to pay $654,500. So, if I'm a lender, and I didn't catch that, then that's an over $600,000 fee cure. If I have, say, 10 loans in the pipeline, now you're looking at over $6 million, not even including the operational costs."

Such discrepancies emphasize the need for robust fee solutions that provide near real-time, localized data on transfer taxes and other fees to monitor and address these changes when they occur.

Read the National Mortgage News article to learn more about the varying differences in real estate transfer taxes and how certain fee compliance errors can result in fee cures, drastically affecting a lender’s bottom line.