Cost of inflation
In lieu of tracking down the settlement agent for an exact figure, originators frequently
rely on fee engines to inflate or pad estimates to ensure the amount on the LE is higher
than the final charge on the CD. TRID’s tolerance provisions only apply to fee increases,
not decreases — and besides, most originators prefer to credit or refund consumers for
over-estimated fees rather than charge them more at the closing table. They might not
prefer it, however, if they realized the true cost of this practice.
In a best-case scenario, an originator will succeed in determining final fees in time to
list them on the CD. If any final fees fall outside TRID’s tolerance limits, the originator can
simply credit the appropriate amount back to the borrower as a lender credit. All too often, however, originators do not obtain final fees until after the closing. This is especially
true of those pesky Section E recording fees.
Here’s where the cost of imprecise fee estimation starts adding up. If the final fee turns
out to be less than was estimated, as is often the case due to fee padding, the originator
must refund the customer — even if it’s only a dollar or two. Settlement agents, who
typically handle borrower refunds on behalf of originators, have reported that the cost of
cutting a check, mailing it to the borrower, and then following up when it inevitably ends
up in a low-priority to-do pile is often more than the refund itself.
Saddling settlement agents with the cost and frustration of handling thousands of
miniscule refunds is hardly advantageous to the originator-settlement relationship. Of
course, if the final fee is higher than was estimated, the settlement company must eat the
difference itself. In either case, originators must issue a revised CD and ensure that copies
are issued to both the borrower and the servicing file in accordance with strict timing
Let’s not forget that refunds and redisclosures make for a messy and confusing
borrower experience. Repeat and referral business are the cornerstones of any originator’s or settlement agent’s business model. Post-closing hiccups can leave a bad taste in a
borrower’s mouth and diminish even an otherwise flawless lending experience.
Cutting out the middleman
The solution to this expensive conundrum lies in settlement-originator collaboration.
Modern collaboration portals already exist that enable originators to share, receive and
validate documents and data directly with their network of settlement agents.
By getting fee information straight from the source, in real time, originators can disclose exact fees on the CD with confidence, completely avoiding the hassle of cutting
checks and re-issuing the CD after the loan closes. It’s much more efficient and secure
than phone or e-mail, and leading platforms even automate the creation of an audit trail
that tracks activity along the way.
Real-time CD collaboration has proven so successful and cost-effective that collaboration technologies are already evolving to deliver efficiencies further downstream. The
latest technologies now allow originators and settlement agents to share post-closing
information and communicate the status of recorded documents.
Eventually, these centralized platforms may offer upstream efficiencies as well, making
it easier for settlement agents to weigh in on fee estimation during preparation of the LE
and eventually eliminating the impetus for originators to pad fee estimates altogether.
n n n
It is ironic that automated fee estimation, often selected for its presumed efficiency and
independence from third-party inputs, can create more downstream compliance headaches and clean-up than simply communicating with third-party vendors. Automation
itself is not the problem. It’s just that we should be automating originator-settlement
communication, not the estimation of fees. Electronic collaboration keeps assumptions
out of the equation and sources the information from those most knowledgeable, creating the efficiency, transparency and control needed to reduce costs and deliver a positive
consumer experience. n
Tiffany Bjarnson is product manager for Simplifile’s collaboration and
post-closing services, which seamlessly connect lenders and settlement
agents so they can securely share, validate and collaborate on loan docu-
ments, disclosures, fees and more. An experienced product manager and
developer who has been with Simplifile for nearly a decade, Bjarnson
is passionate about identifying and solving client pain points using
technology-driven solutions that provide an optimal customer and stakeholder experience.
Reach Bjarnson at email@example.com.
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