Revised Loan Estimate, Tolerance Buckets, and a Closing Fee Surprise
Coastal Sound Lending, a North Carolina mortgage lender, takes a refinance application on Monday, March 3. The initial Loan Estimate shows a $995 origination fee, a $650 appraisal fee for an appraisal management company the lender selects, and an $85 recording fee. On March 12 the lender learns the appraisal will be $800 because the property is rural. On March 14 the borrower locks the rate, which raises the origination points by $600. On March 20 the settlement agent quotes recording fees of $140. On March 21 the processor sends one revised Loan Estimate showing all three increases by email at 4:45 p.m.; the borrower receives it March 24. Closing is April 4. At closing, the lender also charges a new $350 'compliance review fee' that appeared on no Loan Estimate. The borrower's broker asks whether the increases are valid and whether the new fee can be charged.
1. Classify the fees by tolerance category and determine whether the single March 21 revised Loan Estimate validly resets each increase.
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The origination fee is zero tolerance. The appraisal fee is also zero tolerance because the lender selected the appraisal management company, so the borrower cannot shop. The recording fee is in the 10% cumulative category. A revised Loan Estimate must be delivered or placed in the mail within three business days of receiving information sufficient to establish a changed circumstance; for a rate lock, it must be provided on the date the rate is locked. Here the appraisal change was known March 12 and the rate was locked March 14, but the revised Loan Estimate was not sent until March 21. That is late as to those two changes. The recording change was known March 20, so the March 21 revised estimate was timely for that item. The late estimate does not reset the appraisal or origination fees. The lender must absorb the $150 appraisal increase and the $600 points increase.
2. How much of the recording fee increase can the lender pass through, and what should it do about the late revised estimate?
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For recording, the 10% cumulative tolerance permits an aggregate increase of no more than 10% above the original sum in that category. The original recording fee was $85, so the permitted increase is $8.50, not the full $55. The lender can pass $93.50 and must absorb $46.50, unless another valid changed circumstance applies. The revised Loan Estimate dated March 21 is timely for the recording change, but it cannot be used to reset the appraisal or origination fees because it was late as to those. The lender should prepare a corrected Closing Disclosure and a cure or refund if it already collected the excess. The processor should build a tolerance ledger comparing each fee to the original estimate and document the conclusion.
3. Can the lender charge the new $350 compliance review fee or cure it by refunding after closing?
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The $350 compliance review fee cannot be charged. It was not on any Loan Estimate, is a lender fee, and is zero tolerance. A new fee cannot be introduced at closing without a valid changed circumstance and a timely revised Loan Estimate. The lender must remove it from the Closing Disclosure or refund it promptly if collected; a refund after closing may still be a tolerance cure and should be documented. Before closing, the processor should recalculate the tolerance ledger, compare each fee to the original estimate, and determine whether any other valid changed circumstance exists. The broker should advise the borrower in writing. If the lender cannot cure before consummation, it should delay closing or absorb the fees.