hi!

Does issuing the initial closing disclosure reset tolerance on zero tolerance fees?
Here is the example:

Last disclosed Loan Estimate - Appraisal Fee was $850
Initial Closing Disclosure - Appraisal fee was shown as $450
Consummation Closing Disclosure - Appraisal Fee charged to borrower was $600, due to a final inspection that was known to be necessary prior to Initial Closing Disclosure being provided.

If comparing Consummation CD to LE - no cure would be required
If comparing Consummation CD to Initial CD- cure of $150.

In addition to your response, if you could please cite the applicable regulation, that would be most helpful.

thank you in advance!

First, it doesn't matter what's on the last disclosed LE, it matters what's on the LE that set good faith for the appraisal fee. That may be the last one, but it may be the first one if there was not a changed circumstance after that point even though the fee may have changed on a subsequent LE.

Second, your initial CD does not necessarily reset the good faith benchmark. It could, if the initial CD is also being issued in response to a valid change in circumstance. But absent that, the LE that set the good faith is where the final CD would be compared to determine any tolerance cure needed. The regulatory citation is 12 CFR 1026.19(e)(3) and comments.

1. Good faith estimates aren't reduced by subsequent disclosures. They can be increased, but not reduced.

2.The tolerance measurements are made between the amount on the loan estimate (original, or adjusted if a cost increased and a corrected disclosure was timely made) and the actual cost paid by or imposed on the borrower. 19(e)(4)(i)

So, the comparison in your example is between the original $850 and the actual $600. No tolerance violation.

That said, the $450 disclosure on the CD can be considered a violation because it's inaccurate considering the information available to the lender at the time the disclosure was provided. It's not going to result in a penalty unless there's a pattern or practice of such problems.

Suppose that in your scenario, the lender learned that an additional appraisal would have to be completed, raising the total appraisal costs to $950. The closing disclosure has to go out the same day that the lender learns of the increased appraisal cost.due to the scheduled closing date. So the lender puts the $950 amount for the appraisal on the closing disclosure. Since that disclosure is going out within 3 business days of learning of the increase, the CD serves the purpose that a revised LE would ordinarily be used for. The basis for the appraisal estimate is now $950 for the purposes of the tolerance calculations.

Thank you so much for confirming what I believed was accurate