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#2156193 - 12/06/17 10:23 AM 10% baseline when a consumer shopped for services
Due Dili Offline
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Registered: 09/26/06
Posts: 42
Loc: Chicago, IL
I have a new one here. I have a bank challenging the 10% baseline calculation essentially saying that when the consumer shops for a service all of those services then transfer over to the NO tolerance bucket and the only fee left to calculate 10% baseline is the recording fee. Thus if the recording fee its self is more than 10% on its own the excess has to be refunded despite it being within 10% of the aggregate.

For example:
Initial LE Section C + Recording:
Section C: $1,000
Recording: $100

Final CD:
Section C No tolerance fees: $1,000
Recording: $120

They are saying in this example we have exceeded tolerance by $10 because the only fee that goes in the 10% bucket is the recording fee thus the baseline tolerance is $110.

There was more to this as well with them saying that, regardless of whether or not the consumer shopped for a service, it is industry standard to show them in section B regardless and that the provider on the SSPL MUST match the final CD for it to be considered a DID NOT shop service.

Thoughts?
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#2156212 - 12/06/17 11:17 AM Re: 10% baseline when a consumer shopped for services [Re: Due Dili]
Dan Persfull Offline
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They are saying in this example we have exceeded tolerance by $10 because the only fee that goes in the 10% bucket is the recording fee thus the baseline tolerance is $110.

They are correct. Those charges are no longer part of the aggregate total in the 10% category. In other words you can't compare charges in Section B to charges in Section C. It's the same principal that if you showed a survey fee for $500 on the LE as a service that can be shopped for but the survey was not obtained you cannot leave the $500 in your aggregate total for the tolerance comparison.


Edited by Dan Persfull (12/06/17 11:21 AM)
Edit Reason: Add comment.
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#2156221 - 12/06/17 11:38 AM Re: 10% baseline when a consumer shopped for services [Re: Due Dili]
Dan Persfull Offline
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There was more to this as well with them saying that, regardless of whether or not the consumer shopped for a service, it is industry standard to show them in section B regardless and that the provider on the SSPL MUST match the final CD for it to be considered a DID NOT shop service.

I kind of skipped over this comment.

If they choose a provider on your list those charges must be disclosed in Section B which then subjects the charges to the 10% tolerance.

If they choose a provider not on your list those charges must be disclosed in Section C which then removes the charges from the 10% category.
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#2156223 - 12/06/17 11:45 AM Re: 10% baseline when a consumer shopped for services [Re: Due Dili]
rlcarey Offline
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Posts: 64221
Loc: Galveston, TX
Ahh - I don't think I agree.

You disclose $1,000 in services that the borrower can shop in Section C on the LE.

The borrower selects your service provider and those fees are then moved to Section B because they didn't "shop", however the charges remain subject to the 10% tolerance rules and not the 0% tolerance test.

If they chose someone not on your list, then the charges remain in Section C with an unlimited tolerance.

The original Section C charges and the recording fees are aggregated for the 10% test. Whoever is doing this test of your disclosures for you don't have a clue as to what they are doing.

For example, if, in the disclosures provided pursuant to §§ 1026.19(e)(1)(i) and 1026.37(f)(3), a creditor discloses an estimated fee for an unaffiliated settlement agent and permits the consumer to shop for that service, but the consumer either does not choose a provider, or chooses a provider identified by the creditor on the written list provided pursuant to § 1026.19(e)(1)(vi)(C), then the estimated settlement agent fee is included with the fees that may, in aggregate, increase by no more than 10 percent for the purposes of § 1026.19(e)(3)(ii). If, however, the consumer chooses a provider that is not on the written list, then good faith is determined according to § 1026.19(e)(3)(iii).
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#2156234 - 12/06/17 12:02 PM Re: 10% baseline when a consumer shopped for services [Re: Due Dili]
Due Dili Offline
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Registered: 09/26/06
Posts: 42
Loc: Chicago, IL
I think the latter part about showing fees in section B or C is complete nonsense and thus removes any credibility on the other issue which is the 10% tolerance. However, I can see their point but I think it is misguided.

The 10% tolerance should be calculated based on the aggregate of fees we disclosed on the LE at $1,210. We only charged them $120 so we are within tolerance.

Thier argument is that the baseline is $110 because the rest of the fees we disclosed dropped out of the 10% category. I just dont see anything that really supports that and if that were the case why I haven't I seen that in the previous 2 years of dealing with nothing but TRID issues?

Not saying I'm always right, which is why I'm asking you guys.

Thanks.
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#2156244 - 12/06/17 12:27 PM Re: 10% baseline when a consumer shopped for services [Re: Due Dili]
Truffle Royale Offline


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I agree with Dan's first post above and the bank that says that your baseline is now $100 + 10%.

From Randy's citation: If, however, the consumer chooses a provider that is not on the written list, then good faith is determined according to § 1026.19(e)(3)(iii).

The Official Interpretation of ^^ contains the following: ...(if) the consumer chooses a service provider that is not on that list to perform that service, then the actual amounts of such fees need not be compared to the original estimates for such fees to perform the good faith analysis required

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#2156245 - 12/06/17 12:28 PM Re: 10% baseline when a consumer shopped for services [Re: Due Dili]
rlcarey Offline
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Posts: 64221
Loc: Galveston, TX

The 10% tolerance should be calculated based on the aggregate of fees we disclosed on the LE at $1,210.

Whether or not that will be true will be based on whether the services disclosed in Section C of the LE were actually performed.
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#2156246 - 12/06/17 12:31 PM Re: 10% baseline when a consumer shopped for services [Re: Truffle Royale]
rlcarey Offline
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Posts: 64221
Loc: Galveston, TX
Originally Posted By Truffle Royale
I agree with Dan's first post above and the bank that says that your baseline is now $100 + 10%.


No it is not. If they selected a provider from the written list, those fees are then subject to the 10% aggregate test even though you are required to move those fees to Section B on the CD.
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#2156248 - 12/06/17 12:37 PM Re: 10% baseline when a consumer shopped for services [Re: Due Dili]
Truffle Royale Offline


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According to the original post, the fees moved to Section C, Randy, not B.
Therefore, they don't count as part of the 10% aggregate anymore.

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#2156255 - 12/06/17 12:59 PM Re: 10% baseline when a consumer shopped for services [Re: Due Dili]
rlcarey Offline
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Loc: Galveston, TX
Oh boy - TR - scratch everything I previously said frown I can't even blame lack of coffee this late in the day.
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#2156273 - 12/06/17 01:41 PM Re: 10% baseline when a consumer shopped for services [Re: Due Dili]
Due Dili Offline
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Registered: 09/26/06
Posts: 42
Loc: Chicago, IL
So here is the question that I have to ask: What part of the regulation supports this calculation? The bank cant seems to show me and I can't seem to find it.

This is what I do find:

§1026.19(e)(3)(ii) Limited increases permitted for certain charges
An estimate of a charge for a third-party service or a recording fee is in good faith if:
A. The aggregate amount of charges for third-party services and recording fees paid by or imposed on the consumer does not exceed the aggregate amount of such charges disclosed under paragraph (e)(1)(i) of this section by more than 10 percent;

(e)(1)(i) then sites the LE and best information available if a fee is unknown and then makes a circular reference to 19(e)
However, if we look to the commentary on 19(e)(3)(iii) under the heading recording fees we see this:

4. RECORDING FEES
Section 1026.19(e)(3)(ii) provides that an estimate of a charge for a third-party service or recording fees is in good faith if the conditions specified in § 1026.19(e)(3)(ii)(A), (B), and (C) are satisfied. Recording fees are not charges for third-party services because recording fees are paid to the applicable government entity where the documents related to the mortgage transaction are recorded, and thus, the condition specified in § 1026.19(e)(3)(ii)(B) that the charge for third-party service not be paid to an affiliate of the creditor is inapplicable for recording fees. The condition specified in § 1026.19(e)(3)(ii)(C), that the creditor permits the consumer to shop for the third-party service, is similarly inapplicable. Therefore, estimates of recording fees need only satisfy the condition specified in § 1026.19(e)(3)(ii)(A) to meet the requirements of § 1026.19(e)(3)(ii).

This commentary specifically excludes sections B and C of §1026.19(e)(3)(ii) and states ONLY A is applicable which brings us right back to my original citation of §1026.19(e)(3)(ii)(A)

A. The aggregate amount of charges for third-party services and recording fees paid by or imposed on the consumer does not exceed the aggregate amount of such charges disclosed under paragraph (e)(1)(i) of this section by more than 10 percent;

In conclusion, the baseline for recording fees is set on the aggregate of fees disclosed on the LE not considering which fees were or were not shopped for.

Can anyone provide anything in the actual regulation that overrides this?
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#2156276 - 12/06/17 01:55 PM Re: 10% baseline when a consumer shopped for services [Re: Due Dili]
raitchjay Offline
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Loc: OK
(iii) Variations permitted for certain charges. An estimate of the following charges is in good faith if it is consistent with the best information reasonably available to the creditor at the time it is disclosed, regardless of whether the amount paid by the consumer exceeds the amount disclosed under paragraph (e)(1)(i) of this section:

(A) Prepaid interest;

(B) Property insurance premiums;

(C) Amounts placed into an escrow, impound, reserve, or similar account;

(D) Charges paid to third-party service providers selected by the consumer consistent with paragraph (e)(1)(vi)(A) of this section that are not on the list provided pursuant to paragraph (e)(1)(vi)(C) of this section; and

(E) Charges paid for third-party services not required by the creditor. These charges may be paid to affiliates of the creditor.
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#2156277 - 12/06/17 01:57 PM Re: 10% baseline when a consumer shopped for services [Re: Due Dili]
rlcarey Offline
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Registered: 07/16/01
Posts: 64221
Loc: Galveston, TX
You end up when you issue your CD with three buckets.

0% - which is line by line
10% - which is aggregate.
and
unlimited tolerance.

You can't compare fees that have moved to the unlimited tolerance test for the10% aggregate test. If everything has moved but your recording fees - then that is all the is left in the 10% bucket for comparison.
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#2156420 - 12/07/17 10:28 AM Re: 10% baseline when a consumer shopped for services [Re: Due Dili]
Due Dili Offline
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Registered: 09/26/06
Posts: 42
Loc: Chicago, IL
I completely understand the thought process of the "buckets". However, there is nothing in the reg to support a new baseline calculation when a consumer shops for services. The buckets are a good mental picture to explain how the tolerance works but Im not talking about the buckets I'm talking about the baseline tolerance.

@raitchjay, Im not sure what you are referencing above but that just says that consumer selected services do not have a tolerance. I want to see how the baseline is calculated. What part of the reg other than what I have already provided supports a baseline calculation which excludes the lender disclosed service charges.

Everyone is making this leap to say if its a no tolerance fee then it's excluded from the 10% baseline. Why? How? Where is that in the reg?

There is only one way to calculate the baseline 10% tolerance and it is the aggregate of the fees disclosed as can shop fees and recording fees. There is no other support for any other tolerance calculation. Well not that anyone has been able to support anyway.

Look, if I'm wrong, prove me wrong. I went into this with an open mind thinking wow how could I have missed this? But I just can't find any evidence to support this.
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#2156425 - 12/07/17 10:46 AM Re: 10% baseline when a consumer shopped for services [Re: Due Dili]
rlcarey Offline
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Registered: 07/16/01
Posts: 64221
Loc: Galveston, TX
If the customer chooses their own provider and not the provider on your written list, those charges are no longer "Pursuant to 1026.19(e)(3)(ii)" they are made pursuant to 1026.9(e)(3)(iii).

19(e)(3)(ii) Limited increases permitted for certain charges.

2. Aggregate increase limited to ten percent. Pursuant to § 1026.19(e)(3)(ii), whether an individual estimated charge subject to § 1026.19(e)(3)(ii) is in good faith depends on whether the sum of all charges subject to § 1026.19(e)(3)(ii) increases by more than 10 percent, even if a particular charge does not increase by more than 10 percent.


Edited by rlcarey (12/07/17 10:47 AM)
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#2156442 - 12/07/17 11:40 AM Re: 10% baseline when a consumer shopped for services [Re: Due Dili]
John Burnett Offline

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The 10% group includes recording fees and can-shop-for services not provided by an affiliate when the borrower did not shop (i.e., chose the provider from the lender's shopping list of available providers or had the lender pick the provider). Other than recording costs, these services will migrate from Section C on the loan estimate to section B on the closing disclosure (because they were not shopped for). If a "shoppable" service isn't used in the transaction, it is dropped from the 10% group before the 10% tolerance calculation is done.

If a service was shopped for, it goes in Section C on the closing disclosure and could be either 0% tolerance (affiliate-provided) or no tolerance applied (provided by an unaffiliated third party not on the provider list).
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#2156445 - 12/07/17 11:48 AM Re: 10% baseline when a consumer shopped for services [Re: Due Dili]
RR Joker Offline
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I do understand where DueD is coming from...it does seem 'unfair' that suddenly the only 10% tolerance is recording. I've had several tolerance reimbursements [small] due to this anomaly. I just don't think it was well thought through, but then, I digress.
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#2156446 - 12/07/17 11:49 AM Re: 10% baseline when a consumer shopped for services [Re: Due Dili]
rlcarey Offline
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"If a service was shopped for, it goes in Section C on the closing disclosure and could be either 0% tolerance (affiliate-provided) or no tolerance applied (provided by an unaffiliated third party not on the provider list)."

John, actually under the amendments, if your affiliate was not on the banks written providers list and the borrower chooses them on their own - the tolerance is now unlimited also.
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#2156460 - 12/07/17 12:16 PM Re: 10% baseline when a consumer shopped for services [Re: Due Dili]
Adam Witmer Offline
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Originally Posted By Due Dili
Can anyone provide anything in the actual regulation that overrides this?


I know this isn't a regulation citation, but the CFPB's small entity compliance guide (v.5) says this:

7.7 What happens to the sum of estimated charges if the consumer is permitted to shop and chooses his or her own service provider? (§ 1026.19(e)(3)(iii); Comment 19(e)(3)(ii)-3)

Where a consumer chooses a third-party service provider that is not on the creditor’s written list of service providers, the amount that may be charged for the service is not limited. (§ 1026.19(e)(3)(iii)). See section 7.3 above, describing charges subject to no tolerance limitation. When this occurs for a service that otherwise would be included in the 10% cumulative tolerance category, the charge is removed from consideration for purposes of determining the 10% tolerance level. (Comment 19(e)(3)(ii)-3)
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#2156512 - 12/07/17 03:33 PM Re: 10% baseline when a consumer shopped for services [Re: Due Dili]
Due Dili Offline
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Registered: 09/26/06
Posts: 42
Loc: Chicago, IL
Okay, I appreciate all the responses. I understand almost everything said above. I would have to respond to each of the comments above which would be too much.

The only thing thus far that I had not already looked at was the below from Adam as I was looking in the reg and not the guide:

When this occurs for a service that otherwise would be included in the 10% cumulative tolerance category, the charge is removed from consideration for purposes of determining the 10% tolerance level. (Comment 19(e)(3)(ii)-3)

However, I don't read the commentary 19(e)(3)(ii)-3 to say that, but fine let's assume that's the case. This comment is also under the heading "SERVICES FOR WHICH THE CONSUMER MAY, BUT DOES NOT, SELECT A SETTLEMENT SERVICE PROVIDER."

Directly below that same comment is this which very clearly states recording fees are not shoppable fees and are ONLY subject to 1026.19(e)(3)(ii)(A).

19(e)(3)(ii)-4
Recording fees are not charges for third-party services because recording fees are paid to the applicable government entity where the documents related to the mortgage transaction are recorded, and thus, the condition specified in § 1026.19(e)(3)(ii)(B) that the charge for third-party service not be paid to an affiliate of the creditor is inapplicable for recording fees. The condition specified in § 1026.19(e)(3)(ii)(C), that the creditor permits the consumer to shop for the third-party service, is similarly inapplicable. Therefore, estimates of recording fees need only satisfy the condition specified in § 1026.19(e)(3)(ii)(A) to meet the requirements of § 1026.19(e)(3)(ii).


Are we completely discounting the only specific reference to recording fees directly?

Randy mentioned 1026.19(e)(3)(ii) would not apply and it would become subject to 1026.19(e)(3)(iii)(D) "Charges paid to third-party service providers selected by the consumer", but again comment 19(e)(3)(ii)-4 says recording fees are not consumer selected services.

Either way, I'm not wholly convinced that is what the text says, but I can buy that it was the intent of the rule.

The whole argument was theoretical anyway as the investor in this specific case said the consumer did shop when they didn't. We used one of our 3 common providers but only listed one on the SSPL. To which they argued we HAVE to list THE provider we are going to use. I disagree and hope there isn't an argument in support of that because even they backtracked on it.

Just to put it in perspective though this "cure" would be required if the consumer DID SHOP for services, but would not be required if they used our provider because then all the other 10% fees would still be included in the baseline. That seems pretty counter-intuitive to me. No tolerance title fees cause a cure when 10% title fees would not.


Edited by Due Dili (12/07/17 03:38 PM)
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#2156513 - 12/07/17 03:44 PM Re: 10% baseline when a consumer shopped for services [Re: Due Dili]
rlcarey Offline
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Recording fees are always in the 10% bucket. Fees disclosed in Section C of the LE remain in the 10% bucket if they select a service provider from your written list. If they select someone else, those charge go to unlimited tolerance as you have no control what any other service provider may charge. I don't understand why this is counter-intuitive.
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#2156575 - 12/08/17 10:10 AM Re: 10% baseline when a consumer shopped for services [Re: Due Dili]
Due Dili Offline
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Registered: 09/26/06
Posts: 42
Loc: Chicago, IL
What is counter-intuitive is that subjecting fees to no tolerance result in a cure when subjecting them to a 10% tolerance fees do not.
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#2156577 - 12/08/17 10:34 AM Re: 10% baseline when a consumer shopped for services [Re: Due Dili]
John Burnett Offline

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Any requirement that you list on the SSPL the provider that you will use if the borrower doesn't select one is fabricated by your investor. All that is required is that any provider(s) on the list be available to provide the service.
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