Keeping up with the relatively recent estimate tolerance requirements from the last wave of GFE reform can still be a challenge, and with the next round expected to make those requirements even tighter, companies are likely to redouble their efforts to make sure they have an efficient and accurate means of producing documented data to back those estimates.
Companies still tend to “overdisclose” or “not disclose correctly” if they do not have this kind of operational support, Cathy Blaszyk, vice president of closing services at ClosingCorp, told this publication.
She said she has heard anecdotally that lenders individually, depending on size, can face tolerance violations that have cost them from $50,000 to $500,000 per month.
Blaszyk said she has observed a variety of approaches to handling the situation, including using offshore facilities, calculators, separate departments and loan officers, as well as third-party data and technology companies like hers. Some have used more basic “template and table” approaches but these have proved often to be problematic given estimate tolerance requirements and operational costs.
The estimates continue to prove strategically challenging to loan officers in some cases, who on one hand seek to “be competitive so they want to show the lowest fees,” but this may cost their lenders in tolerance violations if they get it wrong. As a result of this and of the possible further tightening in tolerances from the next approaching round of GFE revision, as well as the possible greater supervision from the Consumer Financial Protection Bureau that may accompany it, many lenders are trying to get control of who is disclosing the estimates and where the estimates are coming from, said Blaszyk.
Another challenging aspect of drawing up the estimates can arise if one fails to take into account the potential influence of a distressed transaction on transfer taxes, a relatively common occurrence in today's market given that a relatively large percentage of properties are distressed, she said.
There is a 0% tolerance on transfer tax estimates. In Pennsylvania, for example, these are customarily paid 1% by the buyer and 1% by the seller. But if the property is distressed, because it is not a statutory requirement and the bank selling the property may have already incurred inordinate losses on the property, it not may elect not to pay its 1%. Users can customize the technology to mitigate this risk.
Interestingly, she noted that so far it appears that consumers perhaps contrary to what some might have expected, are not often shopping for individual closing services based on lowest price, but she noted that she believes that could change over time as data become more accessible to consumers.
Right now, “most buyers defer to an expert to guide them,” Blaszyk said. “We really don't see the consumer taking as much control as we had hoped they would.”
When asked how the next update of the GFE is likely to be handled, she said, “It will be a matter of mapping data to the new format.”
