Fees Collected Before the Loan Estimate
On Saturday, March 1, 2025, loan originator Priya meets a borrower and obtains all six pieces of information needed for a residential mortgage application: name, Social Security number, income, property address, estimated value, and loan amount. Priya collects a $500 application fee and a $650 appraisal fee by credit card that day, orders the appraisal on Monday, and emails the Loan Estimate on Tuesday, March 4. The borrower later asks why the LE shows both fees as already paid. Priya's processor says the appraisal fee is allowed before the LE because it is a third-party fee, and the application fee is allowed because the borrower signed a fee agreement. The lender is not a credit union or bank.
1. When was the application complete, and was the Loan Estimate timely?
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The application was complete on Saturday, March 1, because Priya had all six pieces of information. The LE was due within three business days. Counting Monday, March 3, as day one, Tuesday as day two, and Wednesday, March 5, as day three, the LE had to be delivered or placed in the mail no later than Wednesday. Emailing it Tuesday, March 4, was timely if delivery occurred that day and the lender can evidence receipt. The timing of the LE is not the main problem.
2. Were the $500 application fee and $650 appraisal fee permissible before the LE?
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No. Regulation Z prohibits imposing any fee before the LE is provided, except a fee for a credit report. The appraisal fee is a third-party fee, but it is still not exempt. A signed fee agreement does not create an exception. Collecting both fees on March 1 violated the rule even though the LE was issued later that same week. The lender should refund the fees or otherwise cure the violation, review the LO's fee-collection practices, and document the corrective action.
3. What should the lender do with the file now, and what records should be kept?
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The lender should stop collecting application and appraisal fees at intake, refund or credit the improperly collected amounts, and confirm that the appraisal was ordered under a compliant process. The file should contain the application date, the six pieces of information, the LE delivery evidence, the fee receipts, the refund or cure documentation, and a memo explaining the root cause. The LO should also be retrained on the credit-report-only exception.