The TRID consumer disclosure rules made a number of changes to how disclosures are
treated. For one, the tolerances that apply to each fee became more difficult to discern
and, in some cases, stricter. Originators also found themselves responsible not just for
curing any discrepancies between the new Loan Estimate (LE) and Closing Disclosure
(CD) forms, but also for paying regulatory penalties in the event of a TRID violation.
It wasn’t long before originators became the party most likely to create both disclosures — even though virtually all closing costs, other than origination fees, are determined by third parties. These third-party charges include appraisal fees, title company
charges, escrow reserves and prepaids like homeowner’s insurance and taxes, none of
which can be controlled by the originator.
Illogical as it may seem, originators often populate both the LE and the CD without
any real-time coordination with the appraisers, settlement agents and other third-party
vendors who are best positioned to calculate closing costs. Instead, originators rely
on a variety of tools, including humble worksheets, web-based fee calculators and
fee-estimation engines integrated into their loan origination systems (LOS) to determine these costs.
This insular, “do-it-yourself” approach purports to protect originators from exposure
to third-party errors. In truth, however, it can easily reduce the accuracy of fee estimation
and may unwittingly expose originators to unnecessary loan costs and compliance risk.
It also can have a substantial negative impact on the borrower experience.
The better approach is to coordinate with third parties closely, early and often using
modern tools that make such collaboration painless, secure and affordable. Consider
Section E of the Closing Cost Details, which covers transfer taxes and other government
fees. This is a place where originators could save themselves a lot of headaches, risk and
unnecessary costs by collaborating more closely with third parties earlier in the mortgage process.
Garbage in, garbage out
To estimate Section E fees, originators typically use a web-based fee calculator or
third-party fee estimation service. The problem with this methodology is twofold. First,
the fees estimated by calculators and vendor services are only as accurate as the information they receive from the originator. The information required by a given fee estimator
varies, but typical originator inputs include information about the property’s location
(state, county and city), the number of pages to be recorded and the purchase price or
new debt amount.
These calculators often are pre-populated with “standard” or default values for certain
data fields, which further dilutes the precision of the estimation process. Originators often calculate recording fees based on a 30-page filing, for instance, even when the actual
page count is higher or lower.
Second, this approach depends on the accuracy and timeliness of third-party fee databases, which is an unnecessary gamble when more reliable data can be obtained straight
from those closest to the source. The trouble is that originators don’t always have a clear
idea of the final number of pages that will be recorded after closing.
Settlement agents, who work closely with their local recording offices and understand jurisdictional filing requirements, are much better equipped to answer this
question. Yet instead of getting fee estimates straight from the horse’s mouth, many
originators still sidestep settlement agents to get fee data from a middleman — and
pay for the privilege.
Stale data also is a concern when it comes to fee-estimation calculators and services.
A settlement agent who works with a recording jurisdiction on a daily basis will have
much more up-to-date fee information than a database that is updated less frequently.
A few top-shelf fee estimation services offer real-time fee monitoring, but they often
consider this a premium feature and charge originators accordingly.
So, what is the alternative? Prior to TRID, it was common practice for an originator to
simply pick up the phone or shoot an e-mail over to the settlement agent to request the
page count and other information needed to estimate fees. Nowadays, most originators
recognize the pitfalls of these communication mediums, which are neither secure nor
auditable. Additionally, unchecked voicemail and e-mail filtering can result in missed
messages that add unwanted and costly time to the origination process.
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