Loan Officer Training 09/18/2024 - How to Disclose a Loan Without Tolerance Cures

Welcome to Loan Officer Training! In today’s episode, we're tackling the intricacies of loan disclosures and focusing on how to handle situations where tolerance cures aren’t necessary. Understanding how to properly disclose a loan without resorting to tolerance cures is key to maintaining compliance and ensuring a smooth loan process.

We’ll start by clarifying what tolerance cures are and why they might come into play. Then, we’ll guide you through the steps to disclose a loan accurately and effectively, even when tolerance thresholds are met without requiring adjustments. Our experts will share best practices for ensuring that your disclosures are clear, transparent, and fully compliant with regulations.

You’ll learn about common scenarios where tolerance cures might not be needed, and how to navigate these situations while keeping your clients informed and satisfied. With practical insights and actionable advice, this episode is designed to help you streamline your disclosure process and enhance your proficiency as a loan officer.

Tune in to Loan Officer Training to master the art of loan disclosure and avoid the pitfalls of tolerance cures, ensuring a seamless and compliant loan experience for your clients.

Join The Mortgage Calculator at https://themortgagecalculator.com/join

About The Mortgage Calculator:

The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as over 5,000 Non-QM mortgage loan programs using alternative income documentation! 

Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered softwa

Catch all the episodes of the Loan Officer Training Podcast at https://themortgagecalculator.com/Page/Loan-Officer-Training-Series-Podcast

Catch all the episodes of the Loan Officer Training Podcast at https://themortgagecalculator.com/Page/Loan-Officer-Training-Series-Podcast

Loan Officers for Unlimited Free Non-QM Leads & Trainings Join The Mortgage Calculator at https://themortgagecalculator.com/join

The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as over 5,000 Non-QM mortgage loan programs using alternative income documentation!

Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!

Our team of over 350 licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as well as access...

Transcript

Restream recording Sep 18, 2024 • 04:01:01 PM: 0:13

So welcome everyone. My name is Kyle Hiersche. I'm the COO of the Mortgage Calculator joined here by our President Nick Hiersche and our CSO Jose Gonzalez. We are a lender that specializes in non QM loans and what we do every Tuesday, Wednesday, and Thursday at 12 p. m. Eastern is our loan officer training where we do a different loan officer training topic. And today's topic is very important on how to disclose a loan without getting tolerance cures. None of us like those, right? So I'm going to go ahead and turn it over to Jose so he can go through the presentation. All right. Um, so like we mentioned, a very important topic, want to make sure we're accurate. Uh, and also of utmost importance, uh, we want to look out for our borrower's best interests and make sure that we build credibility along the way. Don't want to under disclose and then all of a sudden hit him with sticker shock at the end. So let's get right into it. So what exactly, what exactly do we mean by a tolerance cure? A tolerance cure is a reimbursement made to a borrower when the actual settlement charges exceed the charges disclosed on the loan estimate by more than the permitted tolerances. The lender may cure the tolerance violation by reimbursing the borrower the amount. by which the tolerance was exceeded either at settlement or within 30 calendar days after settlement. Uh, now there are three different categories, uh, to consider. The first is, uh, zero tolerance items. Um, You would be looking at section A, origination charges, right? Our lender fees. Uh, section B, which are services that the borrower cannot shop for if a provider list was not provided. If on section B, a provider list was provided, then that would be in the 10 percent tolerance category. And section E, taxes and Other government's fees, specifically the one, uh, in this section that we're talking about is the transfer tax, which is based on a percentage. So, on the 10 percent tolerance category, these are items that can increase collectively by 10 percent as a whole. All the items in that category, adding up any of the differences, if it's 10 percent or under collectively, no need, uh, you're not going to have a tolerance cure. When you redisclose the amount, these would be section B charges, which are the services you cannot shop for if a provider list was provided to the borrower, excuse me, and the section E, uh, government section, the fixed items only. Such as a recording fee assignment, uh, assignment, recording fees and stamp fees, if not based on a percentage amount, any stamp fees based on a percentage amount, uh, go into the zero tolerance section and then we have the, uh, no tolerance, uh, fee items, I mean, no tolerance cure items, excuse me, which would be, uh, Uh, section C services you can shop for, like, for example, if the borrower, uh, switch title companies or, you know, now they shopped for that title company and we have, um, some different fees, uh, that would not be subject to tolerance cure the prepaid in section F, like the insurance for the year, uh, taxes and any other prepaid items and the, uh, section G initial, uh, escrow payment also. The reserves, like we like to call it, like they're called and the section H, uh, which for example, uh, are the other items like, uh, association, uh, capital contribution, uh, things like that. So what would be the best practices for disclosing loans? Well, whenever possible, it is always best to disclose with service providers like Lodestar. Or smart fees, uh, for your title company fees, for example, and then redisclose with the borrower selected title company fees. Once the title order is complete, avoid whenever possible using affiliate title companies or affiliate, um, um, partners, which may result in zero tolerances. Cause then you are not giving the borrower the choice. To shop that item. So that would be a zero tolerance cure. I, uh, so best practices again. Um, you would want to have accurate cost estimates again by either using load star smart fees. Pre CD from borrower selected title company and then also make sure that you're actually quoting the correct amount for a loan origination. Correct amount for appraisal. All of the services have to be correct. You cannot just be making the fees up. You want to have a detailed breakdown of the costs, right? Don't just lump them all together. Section A origination fees do not underestimate. Uh, your section B and C title fees again, based on your accurate cost estimates and the section E tax and government fees. Again, uh, you don't want to just be making up transfer taxes or recording fees. You want to base them on actual numbers and if you do have any valid change of circumstances. Please make sure that you redisclose those valid change of circumstances within three days, because any valid change not redisclosed within three days will result in a tolerance cure. So, uh, last but not least, uh, this is the most important part when we consider, uh, if you are going to have a tolerance cure or not. What are the valid change circumstances that can be? Redisclosed within three days without a tolerance care. Well, the first section would be change circumstance affecting settlement charges. For example, you estimated the appraisal fee was going to be 500, but now due to the complexity of the appraisal. Uh, or appraiser availability. They just can't find someone to pick up the order for 500, but they, the cost would be 800. You have to, um, redisclose that new higher fee to the borrower, uh, within three days of your awareness of the higher fee, it's not really when the customer pays it, it's like when you became aware that that additional fee. was going to be needed. That's when you have to redisclose that additional fee. The next section would be changed circumstances affecting eligibility or value of the property securing the loan. So for example, borrower credit score drops resulting in higher loan fees or property appraised value is lower than the estimated value. As you know, that could affect the loan to value The loan to value increases. It could be a probability that the cost on the loan will also increase. So those would be change circumstances. Uh, that need to be re disclosed again within three days. If you don't re disclose it within three days, you're going to have a non compliant file. Third category, Consumer Requested Revisions. So, borrower tells you to increase the loan amount, uh, transfer taxes increase. Well, re disclose the higher transfer tax. Because the borrower requested to increase the loan amount. If you do not re disclose the new hire transfer taxes within three days, now you have a tolerance cure for the increase in transfer taxes. Next category would be an interest rate lock or a lop extension, for example, either locking it initially or when you extend the lock, which is going to obviously incur a fee. So any changes to the points, lender credits, Any other interest rate dependent fees would need to be redisclosed within days, uh, loan estimate expiration. This is an interesting one. You send out the loan estimate. There is an intent to proceed notice in that loan estimate. If the loan estimate is not signed within 10 days, which means basically the intent to proceed is not going to be signed either. Uh, within 10 days, then a revised loan estimate is issued. Can be issued that discloses any fees that may have increased during that time period that the borrower did not sign. Right? It could be the cost and the rate or anything else associated with it. And last but not least, um, this is one many people are not aware of construction loan settlement delay. If closing occurs more than 60 days after the original loan estimate was disclosed, right? That's when we don't use too often, but it can occur because we know construction loans tend to take months, uh, to, to close sometimes depending on the, uh, getting information from the contractor, bids, a number of things that could delay the construction loan from closing. So you can redisclose a new LE, Okay. With the higher cost, but the main thing to consider there is that if this strategy is going to be used to redisclose the LE, um, conspicuous notice, this is how it states in the law, conspicuous notice needs to have been given at the original time when the file was disclosed, letting the borrower know that if it's more, if the closing is delayed by more than 60 days, That, um, the fees could go up if you don't give them that type of notice in the original disclosure, then you cannot increase any of the fees just because there was a delay items and sections, because this is what normally causes a tolerance cure, either that or initially when the loan is disclosed, it is disclosed with underestimated interest. So, uh, make sure you follow all of these notices, uh, to avoid any trade tolerance cures. All right. Thank you, Jose. Let's see here. Uh, it looks like we do have a couple questions on this one. First question is, is there a list anywhere of states which have and don't have transfer tax? I am sure there is. Just go to the online search engines and look for, that's a really easy one to find out. You can just search each state for transfer tax and you should be able to get that information very easily. Alright, do we have another question here? I know standard practice is charging 275 basis points to the customer, but NCCAP's mortgage loan origination fee is at 25%. How do we square those seemingly opposing numbers? Uh, well, when it's, yeah, I mean, uh, first of all, if we're lender paid, uh, you know, it's included in the rate, you're going to run your points and fees test. Uh, you have to just include what they're talking about. Loan origination is like underwriting fees and stuff like that. So you go fees in, uh, when the file is being disclosed, so you don't have any of those extra fees. And then hopefully when you run your, your points and fees test, you're going to get some bonafide discount points so that that's going to help you pass any of those state tests for states like North Carolina. And also to note, I believe there's a limit on that. Uh, it's only applicable, I believe for loans, uh, under 300, 000. All right. Okay. I don't see any other questions. So we'll go ahead and wrap it up. Great training here though today. Very important. Uh, remember that we do this every Tuesday, Wednesday, and Thursday at 12 PM Eastern, where we go through a new loan officer training topic. So we will see you all tomorrow at 12 PM Eastern for the next episode of the loan officer training series with the mortgage calculator. Have a great day, everyone.