I'm rather weak in TRID, and I've recently come across a question from our 1st line that has me somewhat perplexed, and I wanted to hear others' thoughts and experiences.

We do not allow our borrower to shop for a notary. For documents needing notarization at closing, we use an in-house notary, but only when they are available. Otherwise, we use a 3rd party vendor. Our in-house notary costs a little less than half of what our 3rd party notary costs. Scheduling and availability drives which notary is used. As such, we always disclose the 3rd party notary fee in Section B since it is higher.

When the in house notary is determined to be free, they are booked for the closing, and the fee is redisclosed on the CD, moving from Section B (higher amount) to Section A (lower amount). Both of these sections are zero tolerance, and I'm unsure of how to make sense of the TRID rules, here. While the overall fee is decreasing, and section B is decreasing, section A is increasing. It's hard for me to conceptualize that we are disclosing in accordance with BIRA and meeting good faith when we know that on a not insignificant number of loans, we are purposefully over-disclosing the fee.

We do both no-closing-cost loans and regular points and fees loans. It is clear to me that on a no-closing-cost loan, since we are providing a lender credit (and still doing it as a general lender credit on the LE instead of the absorption method of a specific lender credit on the CD only, covered by the 2020 FAQs), that the lender credit can't decrease, and we have to cure the difference.

So my questions are for a points and fees loan with no lender credit:
1) Have we violated BIRA/good faith since there is no valid changed circumstance?
2) Is there a cure required since Section A is zero tolerance?
3) Since disclosing the fee in the wrong section is a technical violation, is this a pattern of practice that would be looked at negatively by the regulators?
4) Any other points I'm not considering?

1) Have we violated BIRA/good faith since there is no valid changed circumstance?

BIRA is a pretty squishy standard. If you go read the commentary under 17(c)(2)(i)-1, it makes it crystal clear that the lender has to try their best to estimate the fees, but absolute perfection is not required. Based on what you've described, you have no way to know, when disclosing the LE, who would be performing the notary service, and how much the fee would be. In that case, I think it's perfectly acceptable to disclose an estimate.

2) Is there a cure required since Section A is zero tolerance?

The section isn't relevant to determining what tolerance standard to apply. You require the borrower to pay for a notary fee. You disclosed a notary fee. You compare the notary fee you disclosed to the notary fee charged and apply the 0% standard.

3) Since disclosing the fee in the wrong section is a technical violation, is this a pattern of practice that would be looked at negatively by the regulators?

Where is the violation? Remember that when you disclose the LE, you are only 3 days out from application. At this point in time, you do not know who is performing the service. It would only be a violation if you KNEW at the time of disclosure who would be performing the service. If this can be considered a violation, then you would have a violation irrespective of whether you disclosed in A or in B, because at closing, either the in-house notary or third party notary would be performing the service. Your CD still has to be correct once you know the provider, but I don't see an error on the LE.

4) Any other points I'm not considering?

If I were you, to cover my bases, I would sample 100 or so closed loans and see who performed the notary. If it's 50/50, I think what you're doing is fine. If however 90% of the time your in-house notary is performing the service, then there's an argument that can be made that you should be disclosing the fee in A at the lower rate. Then, if you do find out that the in-house notary isn't available and you have to use a third-party notary, this is new information that has changed and you can re-disclose this as a valid Changed Circumstance. If anyone questions this practice, you can point back to your original sample and say:

"Look, we know that our in-house notary performs the service the overwhelming majority of the time. Knowing that, we relied on the assumption that the in-house notary would perform the service. We later find out he/she was not available to perform the notary service. This was new information that made the information we relied on previously inaccurate. Therefore, there is a valid changed circumstance as described in § 1026.19(e)(3)(iv)(A)(2). Here is proof of the date of when we had notice that the in-house notary is not available. Here is the revised disclosure sent within 3 business days of notice that disclosed to the borrower the increased fee." Done.

There is no provision in the TRID regulations that allows you to switch a charge from Section A to Section B or visa-versa without a valid changed circumstance. This is going to come down to a business decision. I would be calling my EIC and asking them their views on the issue. While it is true that Section A and B are both subject to 0% tolerance, it is not that simple.