Back to basics: Shopping for settlement service providers (Part 2)

first_img continue reading » ShareShareSharePrintMailGooglePinterestDiggRedditStumbleuponDeliciousBufferTumblr In Part 1 of this blog, I discussed how to determine if a credit union has permitted the member to shop for a settlement service provider under section 1026.19 of Regulation Z, and how that determination will affect disclosures on the loan estimate. In this blog, we’ll examine how that determination will affect how much the fees disclosed on the loan estimate may change by the time the borrower is actually charged and a closing disclosure is provided.So what if the estimated charges for a certain settlement service changes after the loan estimate is provided? That’s where tolerances come in. The tolerances determine how much deviation is allowed between what was estimated on the loan estimate, and what the member actually ends up paying (as accurately reflected on the closing disclosure). For more information on tolerances, see this previous post in the NAFCU Compliance Blog.Zero ToleranceThe general rule (found in section 1026.19(e)(3)(i)) is to provide what is known as “zero tolerance” – meaning that the charge eventually disclosed on the closing disclosure cannot exceed what was originally disclosed on the loan estimate – no increase is allowed. The staff commentary provides examples of fees subject to this “zero tolerance” rule, which include  “[f]ees paid to an unaffiliated third party if the creditor did not permit the consumer to shop for a third party service provider for a settlement service” (emphasis added). The general idea with the “zero tolerance” rule is that fees that a credit union charges, or which are charged by the service providers that the credit union requires members to use, should be known to the credit union and therefore should not change from the time of the loan estimate to the closing disclosure. An increase in charges subject to the zero tolerance rule would violate the “good faith” standard required for the loan estimate.last_img

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