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Compliance FAQ - June 3, 2019

Are lenders allowed to exclude post-consummation inspection and handling fees from Section B or Section C of the Loan Estimate and Closing Disclosure?

 

Short Answer

Yes. The Amendments to Federal Mortgage Disclosure Requirements under the Truth in Lending Act - Regulation Z (TRID 2.0) allows the lender to include the construction inspection fees and handling fees that will be incurred after closing on a separate addendum to the Loan Estimate and Closing Disclosure.

More Details

Since the inception of TRID 2.0, lenders may include the post-consummation fees on a separate addendum disclosed under the heading of “Inspection and Handling Fees Collected After Closing.” While a lender may itemize the fees, the Regulation only requires that the total of these fees be disclosed.  

Although these fees are not included as part of the Cash to Close, they are considered a Loan Cost and, as such, are to be included in the finance charge and APR calculations. 

When the borrower is not allowed to shop for services, the pre-closing tolerance would be “zero percent.” Lenders are cautioned to ensure that the post-consummation fees are made in good faith and are accurate for the loan being originated. Revised disclosures may be provided in the event of a valid change in circumstance. If changes occur post-closing that will result in additional inspections and costs, these would not be subject to the applicable tolerance violation. There is no violation when a disclosure becomes inaccurate because of an event that occurs after the lender delivers the required disclosures. However, Lenders should ensure that the initial disclosures contain realistic estimates of the costs and add only those fees that result from post-consummation changes.

Similarly, if borrowers are allowed to shop for these services, a 10% cumulative tolerance level would apply if the borrower selects a service provider named on the Written List of Settlement Service Providers. No tolerance would apply if the borrower chose a provider that was not included on the written list. Post-closing changes that cause additional fees would not be subject to the tolerance violation if the change occurs after the lender delivered the required disclosures.

Lenders should refer to 12 CFR 1026.37(f), 1026.38(f), 1026.17(e) and the associated commentary for additional clarification.

If you are interested in discussing your lending program, or in need of assistance relating to lending compliance issues, please contact Stephen King, Principal, Director of Regulatory Compliance Services, at 617-428-5448 or sking@wolfandco.com; Erica Torres, Principal, at 617-261-8121 or etorres@wolfandco.com; or Heather Johnson, Regulatory Compliance Supervisor, at 617-428-5438 or hjohnson@wolfandco.com.