2019: The Year of No Tolerance Cures
By Mark Mackey
January 28, 2019
Mark Mackey is Vice President and General Manager of International Document Services, Salt Lake City, Utah, a mortgage document preparation vendor for initial disclosures and closing documents. He is a frequent contributor to MBA Insights. He can be reached at firstname.lastname@example.org.
Despite the clarity provided by TRID 2.0, there is still one aspect of TRID that continues to plague lenders: tolerance cures. Based on informal research, many lenders may be absorbing thousands of dollars in tolerance cures each year. Given the current environment of low housing supply, rising prices, and increased interest rates, that is an expense lenders can ill afford to incur.
To help lenders eliminate tolerance cures in 2019 and beyond, here are four best practices lenders can adopt, as recommended by peers, to ensure that fees reported on the Loan Estimate fall within the prescribed tolerance limits on the Closing Disclosure.
1. Know Your Rule
When it comes to tolerance levels, not all fees are created equal under TRID. Knowing which fees fall under the three categories--zero tolerance, 10 percent cumulative tolerance and unlimited tolerance--can help lenders avoid unnecessary cures. TRID 2.0, for example, provides tolerance guidance in conjunction with good faith requirements related to the 10 percent rule. Lenders should know what the rules specify and train their personnel appropriately. Lenders should also work with their technology vendors to ask questions and identify the correct fees and buckets.
"With the introduction of TRID, one of the things we learned is that you absolutely have to know what fees are required to be cured in the first place," said Chris Louis, vice president of closing with PERL Mortgage. "It's definitely possible to ‘cure' a fee that is not required to be cured and obviously that needs to be avoided."
2. Improve Internal Communication
Another way to avoid tolerance cures is to disclose correctly the first time. It is imperative that loan officers be held accountable for the fees they disclose upfront to the borrower.
"We have found that communication is the key to avoiding tolerance cures," said CoVantage Credit Union Assistant Vice President of Mortgage Operations Beth Wagner. "The communication has to be there from the borrower to the loan officer to the processors."
A common problem is that information gets lost in translation between departments and employees. Thus, lenders must hold staff accountable for simple human error to help prevent tolerance cures. These errors include misinformation, missed timelines and vague instructions. Accounting for this and including it in meetings, goals, and/or reviews can create an opportunity for management to establish a positive work environment that encourages employees to engage in teamwork and ask questions.
3. Make External Partners Part of the Process
Further challenges arise when lenders must rely on outside partners to obtain fee information, such as appraisal or recording fees. CoVantage Credit Union has found that establishing an open-door policy with their title and appraisal partners has paid off tremendously in reducing tolerance cures.
"One way to prevent cures is to meet periodically with title companies and appraisers. Invite them in, provide food, and keep them updated on any changes to programs or internal processes," Wagner said. "It has been really important for us to build strong business relationships with our title companies and appraisers so we know what fees are going to be charged to our clients."
4. Leverage Technology to Aid in Data Analysis
When it comes to analyzing multiple data fields quickly, even the most experienced mortgage professional is no match for technology. There are multiple tools available to lenders today that can accomplish this type of task with ease, especially in relation to TRID fee analysis. For example, the ability to see a historical comparison of data reported on the previously-issued LE can provide lenders with valuable insight into potential "repeat offenders," enabling lenders to pay special attention to fees which have historically required a tolerance cure.
In addition, conducting an audit of the LE and CD prior to ordering the final document package can help lenders flag potential tolerance violations prior to closing. Leveraging the advanced data analysis tools available can greatly increase lenders' ability to prevent tolerance violations from making it to the final closing package.
With the housing outlook apparently trending slightly downward for 2019, lenders must tighten up operations to shave unnecessary expenses and reduce regulatory risk. Using the right combination of operational best practices and automation, lenders can make 2019 the year of no tolerance cures or violations, potentially saving thousands of dollars each year.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA Insights welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at email@example.com; or Michael Tucker, editorial manager, at firstname.lastname@example.org.)