TRID tolerance violation for omitting cost of PMI

Answered by:

Melissa Blaser | CRCM, CAMS, CPA, CFSA, CFIRS

Question:

I have a processor who issued a Loan Estimate and missed the fact that the loan had a 90% LTV, and the Loan Officer did not catch it either. So, the Loan Estimate did not include PMI. Even if we redisclose it will not fix the TRID tolerance violation. I have always been told that the first month we collect at closing to pay to the PMI vendor would have to be paid by the lender to "cure" the tolerance violation, and then we continue on as normal collecting PMI escrow from the borrower monthly and passsing it on to the PMI vendor. Now someone tells me that when this happens the lender has to pay for the entire life of the PMI, because of the tolerance error. Can anyone tell me what they think and give me something to back up your thoughts?

Answer:

I don't believe the scenario is addressed in the regulation or the commentary. Private mortgage insurance is not mentioned in the tolerance section at all. However, the tolerances only apply to closing costs, which are costs paid at consummation or settlement. Therefore, it does not appear you would need to reimburse PMI premiums paid during the life of the loan. The rule applies various tolerance cure requirements depending on the type of charge. If PMI is paid through escrow premiums the rule says there is no tolerance as long as it was disclosed in good faith. If the PMI escrow premium was not disclosed on the initial LE, it was not disclosed in good faith unless there is a valid change in circumstance. Assuming there wasn't a valid CIC, the PMI premium would be refunded as a tolerance cure. But I find no support indicating any future PMI premiums would need to be refunded.