HousingWireHousingWire
Volatile mortgage loan volume and profits in today’s real estate market are causing lenders to seek out ways to reduce expenses. Most understand that fee cures are a cost of doing business. But, their recurring rate and effect on profit margins remain largely unmeasured due to a lack of published data. ICE Mortgage Technology conducted a cost analysis with a deep dive into previously undetected and preventable expense eroding mortgage lender profit margins. It’s the depth at which these expenses eat into lender profitability.
The study analyzed nearly 90,000 loans from eight lenders over a six-month period to find out how often fee cures happen and to quantify their expense to lenders. The findings and implications from this study were significant. ICE Mortgage’s study identifies fee cures as a preventable cost that is exceedingly common, occurring on more than one in every three loans.
What are fee cures?
The lender covers fee cures if the amounts paid by the consumer at closing exceed the amounts disclosed by more than the applicable tolerance threshold. The TILA-RESPA Integrated Disclosure rule (TRID) requires mortgage lenders to communicate the costs and fees associated with purchasing and refinancing a home. If a lender makes errors in disclosing or changing certain types of fees, they are responsible for detecting and rectifying those errors.
TRID sets tolerances for how fees change after disclosure. Those tolerances fall into three categories:
- Zero tolerance: Fees should not increase after the delivery of the Loan Estimate. Unless an event that triggers a revised Loan Estimate occurs, increases to fees in this category result in a tolerance violation.
- 10% tolerance: It includes third-party services that borrowers can shop for, such as home inspectors, and other expenses, such as county recording, title and settlement fees. Unlike zero tolerance fees, which are assessed individually, 10% tolerance fees are assessed as a cumulative category. If the sum of all fees in the 10% tolerance category increases by 10% or more after delivery of the Loan Estimate, then the lender must pay the difference in fee cures.
- No tolerance fees: Lenders may increase fees that fall in the no tolerance category as long as the fees originally disclosed were based on the best information reasonably made available at the time.
Four most common types of fee cures
Of the top 20 causes studied in the cost analysis, lenders spent the most on zero tolerance fee cures. In fact, four out of five top reasons for they fall into the zero tolerance category – accounting for 61% of unadjusted costs.
The study was able to identify the four most common causes, which were:
- Lender fees: These were zero tolerance fees that accounted for 28% of dollars spent on fee cures and impacted 3.6% of loans.
- Recording fees and transfer taxes: These refer to government-imposed fees that lenders cannot establish, negotiate or control. Recording fees typically have a 10% tolerance and transfer taxes have a zero tolerance. Both accounted for 20% of labor-adjusted fee cures and occurred on 28% of loans studied.
- Title and settlement fees: These fees were established by vendors that are placed in the 10% tolerance or zero tolerance category based on a borrower’s ability to shop, accounted for 7% of labor-adjusted fee cure dollars and occurred on 5% of loans studied.
- Appraisal fees: Fees under this category fall into the zero tolerance category, accounted for 13% of labor-adjusted fee cure dollars spent and occurred on 11% of loans studied.
Fee cure cost analysis findings
ICE Mortgage’s industry-first study on fee cures brings to light their impact on costs and prevalence. The study concluded that TRID violations necessitating fee cures were increasingly common, occurring on 35% of loans on average. Not only were fee cures frequent, but they were also very costly. When averaged across all loans, the reimbursement cost of fee cures alone drove per loan production costs up $128.50.
Furthermore, curing is a time-consuming process that requires action from many departments. ICE calculated the hours of work needed to perform these tasks and concluded the extra labor amounted to an average of $1,096.50 per loan. That brings the total up to an average of $1,225 per loan.
The study identified that lenders could recover more than $1.2 million on every 1,000 loans produced. Ultimately, with the right solution in place, lenders can streamline and automate the closing expense process, preventing expenses by providing accurate, near real-time loan estimate and closing disclosure fees. This saves lenders significant time and money.
To learn more about how the right solution can help identify and prevent fee cures, download ICE Mortgage’s White Paper titled “The hidden cost of fee cures.”
Click Here
