We disclosed on the LE an appraisal fee under A. Origination Charges because our appraisal department assigned the appraisal to one of our internal appraisers. This person became very ill and will be out for some time. The appraisal department reassigned the appraisal to an outside appraiser. We were not notified of this change. Now we are completing the CD and will need to move the fee to B. Services Borrower Did Not Shop For. We use Encompass 360. It is showing this as a tolerance violation, since the fee moved from A to B. However, the dollar amount disclosed for an appraisal is not actually out of tolerance.

Under the new rules, since outsourced (third-party) appraisals are now also a 0% tolerance item since the customer cannot shop, will we need to cure it if in the end it was subsequently assigned to an external appraiser to perform? Ultimately, does it matter who performed the service as long as the charge didn’t increase?

I was understanding the rules for 0% tolerance rules to apply to each fee individually and not the aggregate of the section or even disclosure in a particular section.

For example, we allow a customer to shop for appraisal services. On the LE it is disclosed in C but on the CD it will be in B. if the customer chose someone on the Provider List. Encompass is wanting to show this out of tolerance also, however, we know it is not.

Just wanted some confirmation on the move from A to B on the CD.

Thanks,

You allow the customer to shop for the appraiser?

A is origination charges, B is services the borrower can't shop for, C is the services borrower can shop for.

This is a tough situation, as practically, you disclosed the correct amount, but technically, section A amount is decreasing and section B amounts are increasing. I would err on the side of caution and give the cure.

I'm not as cautious. The zero tolerance fees are not aggregated so it shouldn't matter if the Section B total is increasing. It sounds like your system is treating the entry of the appraisal fee in Section B as a brand new fee. I would make sure the file clearly shows the fee was already disclosed (albeit in the wrong section) and it didn't increase so no cure is needed. There is no harm to the borrower here.

fmissle - No, we do not allow the customer to shop for the appraiser. I meant to say title services. I was rushing to post the question, late for a meeting, and didn't proof read what I wrote. Sorry for any confusion.

TMatt87 - using that logic, if we disclose on the LE that a customer can shop for a service, such as title, disclosed in section C; but they choose something on our list, the fee moves to section B on the CD, we would have to cure section B.

I'll follow up with the CFPB to see what they say.

Thanks for your help.

As Carolina Blue stated, the 0% tolerance fees are not aggregated, so I apologize if that caused confusion. Additionally, not all fees in section B are 0% tolerance. As you state, if the borrower chooses a provider from your list, that fee will be in section B of the CD. However, these fees will be subject to a 10% tolerance (aggregated with other 10% tolerance fees).

We use Encompass as well, and while we haven't had this exact situation, I don't believe Encompass will clear the error and allow you to generate closing documents until a cure is entered in. You might have to get your admins involved if you choose not to cure as they might have to manually push it through to closing docs.

Just as a piggy back to this question should an appraisal fee paid to the bank for an internal evaluator disclosed in Bucket A?

Yes.

So at application if we disclose the appraisal fee in Bucket A, assuming it will be done by our in house evaluator, but the appraisal gets assigned to someone external, we are out of tolerance because it gets moved to bucket B? Holy [censored]!!! That is going to be a nightmare for us to keep up with who the appraisal fee was assigned to at the time of LE.

I don't know where you got that idea, and I hope you didn't infer that my response suggested it. Regardless of whether the appraisal is listed in Section A or Section B on the Loan Estimate (I assume you would not allow an applicant to shop for the appraisal), it is a 0% tolerance item. There's no problem if you initially assume it's to be handled in-house but later have to assign it to an outside appraiser, as long as the cost to the consumer is the same. And if it turns out that a changed circumstance requires a change in the type of appraisal needed for the property (applicant's description of the property inaccurate, for example), even the cost estimate basis for the appraisal can be adjusted with a revised LE.

Sorry John I thought your response was for me.

So if we assume the appraisal will be completed internally we should put it in Bucket A. Then if it goes to an external appraiser we issue a revised LE with the fee in Bucket B? Just wanting to make sure I am clear on the correct way to handle it.

You don't need to issue a revised LE unless there is an increase in the appraisal fee because of a changed circumstance. If there is to be no increase in cost, you don't issue a revised LE; you just move it from A to B for the CloD.

Gotcha...again thank you for the help.

To bring this topic back to life...we have a similar issue:

1. Our appraisal process is not in-house. It's assigned to an external appraiser every time.
2. Our LO accidentally put the appraisal fee in Block A on the LE when it should have been in Block B. (we don't allow brrw to shop)

The amount of the fee hasn't changed, but it's just in the wrong section. Questions:

1. Do I have to switch the Appraisal Fee from A to B? (I think I do)
2. Do I have to cure? (based on the prior example, apparently not. But my bank doesn't do internal appraisals).

1. Yes, for sure.
2. I wouldn't cure for it. You had the fee amount correct, you just had it in the wrong spot. I would treat it as an LE error and train on that issue, but i see no reason to cure for it. The borrower wasn't misled about the amount of the appraisal fee.

Would changing from an in house appraisal to a third party appraisal, due to the customer finding out the water table was too high for a basement and so home needed a crawl space, be considered a change circumstance?

Without knowing all of the specifics, it sounds like it would be a changed circumstance.

Adam, it's a 1300 sq ft home with a crawl space, now with the basement removed, that is in one of our higher end sense tracts, that with an in house appraisal (and no comparisons) couldn't support the loan request. I didn't know that the square footage was 1300 and the home potentially appraising at a much higher price.

So, out sourced support was requested.