The Title Agent the Realtor Recommended
On Monday, June 2, an MLO at Crestline Mortgage takes an application for a $342,000 purchase loan: $380,000 sales price, 10% down, 30-year fixed. Crestline issues the Loan Estimate on Tuesday, June 3. Under 'Services You Can Shop For,' Crestline lists title insurance at $1,300 and hands the borrower a written list of three approved title providers. Recording fees are estimated at $150. On June 20 the borrower locks the rate; the June 3 estimate said nothing about a rate lock. On June 24 the borrower announces she is using the title agent her realtor recommended - a company that is not on Crestline's written list - and the actual premium comes in at $1,910. Closing is set for July 15, and the settlement agent's Closing Disclosure shows the $1,910 premium.
1. Which of these charges are subject to the 10% cumulative tolerance, and does the $610 increase in title insurance create a tolerance violation that Crestline must cure?
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Start with the shopping question, because it controls the bucket.
- The 10% cumulative category covers recording fees and charges for third-party services where the creditor permitted the consumer to shop and the consumer selected a provider from the creditor's written list.
- Crestline permitted shopping (the charge appears in 'Services You Can Shop For') and gave a written list. The borrower picked a provider that was not on that list.
- Under 12 CFR 1026.19(e)(3)(iii), a charge paid to a provider the consumer selected that was not on the written list is subject to no tolerance at all. The premium can rise to $1,910 without a cure.
- Crestline must retain evidence of the consumer's selection (a dated, signed acknowledgment or email naming the company).
What stays in the bucket: the recording fee. It is in the 10% category regardless of shopping, so it is measured against actual at closing.
Counterfactual worth stating: if Crestline had not permitted shopping, title insurance would sit in the 0% category and the $610 increase would have to be refunded to the borrower with a corrected Closing Disclosure within 60 days of consummation.
2. The rate was locked on June 20 and nothing about a lock appeared on the June 3 Loan Estimate. What disclosure obligation does the lock trigger, and by when?
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A rate lock is a changed circumstance that requires a revised Loan Estimate disclosing the locked rate, the lock period, and any rate-dependent charges (points, per-diem interest, adjusted origination charges).
- Timing: the revised Loan Estimate must be provided no later than 3 business days after the date the rate is locked, and in all events the borrower must receive it no later than 4 business days before consummation.
- The revised estimate may reflect only the items affected by the lock and other valid changed circumstances; it cannot be used as a general reset of every fee on the form.
- If Crestline misses the window, it loses the ability to rely on the revised figures and must hold the borrower harmless for increases measured against the original estimates.
- A revised Loan Estimate is never a tool for curing a tolerance violation discovered at closing - that is done with a refund and corrected Closing Disclosure.
Because the lock occurred June 20 and consummation is July 15, there is ample time, but the file must show the revised estimate was actually delivered or placed in the mail within the 3-business-day window.
3. The realtor recommended the title agent. What must the MLO verify and document before allowing the borrower to use that company, and what should the MLO refuse?
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Document:
- Proof the written list of providers was delivered at application (or with the Loan Estimate).
- A dated record of the borrower's own selection of the off-list provider - the borrower's statement, not the realtor's - so the file supports the 'no tolerance' treatment described above.
Screen for a Section 8 problem:
- RESPA Section 8 prohibits giving or receiving anything of value in exchange for the referral of settlement service business. A realtor's recommendation is lawful if no value changes hands.
- The MLO should decline any arrangement in which the title agency offers the MLO's company marketing support, desk space, lead sharing, or a per-file payment tied to referrals. Those are classic kickback fact patterns whether or not they are labeled 'marketing.'
- The MLO also should not accept compensation from the title agency personally, and should not tell the borrower the off-list company is 'not allowed' in order to steer her back to a listed provider - the borrower has the right to shop.
Practical note: re-run the tolerance analysis after the choice is made, so the Closing Disclosure is prepared on the correct basis.