Reset Tolerance Question

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Question:

As to a Reset Tolerance; Say an appraisal fee was disclosed $550 on the initial Loan Estimate and a revised LE was issued with a Change of Circumstances stated rate lock and the addition of discount points and fees. However, the appraisal fee was removed by accident on this revised LE. After this, the processor catches the missing of appraisal fee and issue a initial Closing Disclosure with appraisal fee $550. In this case, do I need to provide cure of $550? The reset tolerance was activated on the revised LE even if the COC at revised LE is stating only interest rate and discount point, is this correct?

Answer:

by Randy Carey:

Some will say that you just have a "good faith" violation on the revised LE and that error does not reset your tolerance baselines because those are only set with the original LE and the baseline can only go up from there when a valid changed circumstance happens. "Others" feel that this sort of "good faith" violations resets your tolerance baseline and those "others" include a lot of investors in the secondary market. There is no specific guidance in the regulations for this sort of error, so on portfolio loans, it is going to be a business decision.

Answer:

by John Burnett

Whether or not dropping the appraisal fee from the revised LE creates a tolerance violation (I agree with Randy that it's usually only an issue when there's an investor challenging it), it can certainly be considered a Reg Z violation, and if it happens often enough examiners are apt to challenge the effectiveness of your compliance program. Your borrower might not appreciate realizing so close to closing that they have to come up with another $550, either.

It shouldn't take a lot of time or effort to have someone else review revised LEs before they are provided or delivered, checking to ensure that nothing from the first LE is missing from the new one.