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Nov, 2015© 2015 Ellie Mae, Inc. This Fee Variance Violated Alert
Scenarios document is intended for general information purposes
only and aims to assist customers in understanding system
functionality. It should not be construed as legal advice or
opinion on any specific facts or circumstances. You are advised to
consult your own compliance staff or attorney regarding your
specific residential mortgage lending questions or situation to
ensure your compliance with applicable laws and regulations. Ellie
Mae®, Encompass®, Encompass360®, and the Ellie Mae logo are
trademarks or registered trademarks of Ellie Mae, Inc. or its
subsidiaries. All rights reserved. Other company and product names
may be trademarks of their respective owners. Products, services
and programs are subject to change without notice.
Fee Variance Violated Alert Scenarios Encompass Fee Variance
Violated Alerts typically occur when fees increase after a loan has
been disclosed, resulting in new fee amounts that exceed allowable
variance (tolerance) limits. There are a number of ways to address
Encompass Fee Variance Alerts. This guide describes some typical
scenarios for addressing Encompass Fee Variance Violated
Alerts.
Fee Variance Worksheet The Fee Variance Worksheet is used to
record disclosed fees, compare the disclosed fees to adjustments
made on the 2015 Itemization form, and track any variance
violations for the disclosed fees. Encompass uses LE Baseline and
CD Baseline amounts on the Fee Variance Worksheet to establish the
variance amounts within each category of fees. Encompass initially
sets the LE Baseline amounts when a Loan Estimate is disclosed to a
borrower and the Intent to Proceed check box is selected on either
the Loan Estimate Page 1 input form or in the Disclosure Tracking
Details. Encompass sets the CD Baseline amounts when the Closing
Disclosure is sent to a borrower. Encompass also may reset the LE
and CD baseline amounts if you send revised disclosures due to a
changed circumstance or a borrower requested change.
Fee Variance Alert Encompass displays the Good Faith Fee
Variance Violated Alert when a variance condition occurs.
The alert triggers when one of the following conditions occurs:
In the Items that Cannot Decrease category, a credit is decreased
or removed. In the Charges that Cannot Increase category, a charge
is increased or added, or an amount is added in
one of the baseline adjustment fields for this category. In the
Charges that in Total Cannot Increase more than 10% category, the
total for fees in the category
increases beyond 10% of the baseline (i.e. the legal limit) or
an amount that exceeds the 10% limit is addedto one of the baseline
adjustment fields for this category.
Addressing Variance Violated Alerts You may avoid triggering
Encompass Variance Violated Alerts in a number of ways, depending
on your loan’s specific circumstances.
Document applicable Changed Circumstance or Borrower Requested
Change – In order to avoid aVariance Violated Alert, if a fee
increase is due to a changed circumstance or borrower requested
change,you can select a reason and optionally indicate a Changed
Circumstance (on Loan Estimate Page 1 orClosing Disclosure Page 1
input form) and then redisclose. The baseline amounts are then
updated with theadjusted amounts from the 2015 Itemization.
Offset with a Specific Lender Credit - If the Variance Violated
Alert is due to a fee increase that is not achanged circumstance or
borrower requested change, and you want to offset the fee increase
with a specificlender credit, the Variance Violated Alert can be
resolved by adding a specific lender credit on the FeeDetails
window for a particular fee by editing the fee details pop-up
window in the 2015 Itemization andincreasing the Paid by Lender
amount. This results in an increase in the Paid By Others column on
page 3of the Closing Disclosure. Please note that Encompass does
not expect this method to be utilized inconjunction with
unallocated credits or rebates for interest rate.
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Offset with a General Lender Credit - If the Variance Violated
Alert is due to a fee increase that is not a changed circumstance
or borrower requested change and you want to offset the increase
with a general lender credit, you can apply a general lender credit
in Line L on the Details of Transactions section on the 2015
Itemization to add a general lender credit to both the LE and/or
CD. Encompass expects this method may also be appropriate when a
credit is being issued and there is credit for rate or rebates not
allocated against specific fees.
Cure Variance Violated Alert After Closing- When a Variance
Violated Alert is being resolved at or after closing, Encompass
expects you to use the Applied Cure Amount field (field FV.X366) on
the Fee Variance Worksheet to enter the cure amounts you will be
giving the borrower. Entering a value in this field also triggers
the “exceeds legal limit” language to appear on pages 2 and 3 of
the Closing Disclosure. Prior to applying the cure amount, you may
use the baseline adjustment fields to document credits that will
have to be applied at or after closing.
Baseline Adjustment Fields On the Fee Variance worksheet,
Baseline Adjustment fields are available in the Charges that Cannot
Increase and Charges that in Total Cannot Increase more than 10%
categories. Encompass has these fields so you may enter amounts
that will be used to cure a variance violation before, at or after
closing. When you enter amounts in the Baseline Adjustment
fields:
The Net Good Faith Baseline amount is reduced by the Baseline
Adjustment amount. This amount is used as the new baseline amount
for determining Fee Variance Violated Alerts in the category.
For fees in the 10% category, the Legal Limit (Net Baseline +
10%) amount is recalculated based on the new Net Good Faith
Baseline amount.
Scenarios The following sections describe typical scenarios that
you might encounter while resolving Encompass Fee Variance Violated
Alerts.
Scenario 1: Valid Changed Circumstance In this scenario,
after disclosing the Loan Estimate, the appraised value and
purchase price for the property has increased from $150,000 to
$160,000. The borrower requests an increase in the down payment and
loan amount to avoid paying mortgage insurance. Based upon the
borrower’s request, you want to redisclose the Loan Estimate with a
changed circumstance so that Encompass will readjust the LE
Baseline amounts based on this changed circumstance.
1. On the Borrower Summary – Origination input form, adjust the
Appraised Value, Estimated Value, and Purchase Price to $160,000,
and confirm the Down Payment percentage is at least 20%.
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2. A fee variance alert is generated, and an entry for the alert
is added to the Loan Log.
3. On the Fee Variance Worksheet, the increased origination
charges result in a fee variance of $80.00.
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4. On the Loan Estimate Page 1, select the Reason option that is
appropriate under your company’s policies and procedures, and then
indicate that the redisclosure is the result of a changed
circumstance. In this example, the Revisions requested by the
Consumer option is selected as the Reason, and the Change in loan
amount option is selected as the Changed Circumstance.
5. Redisclose the Loan Estimate.
The Encompass fee variance alert clears.
Encompass readjusts the LE Baseline amounts, and the Variance
between LE and Itemization amount is set
to 0.00.
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Scenario 2: Invalid Increase in the Fees That Cannot Increase
Category In this scenario, an increase has occurred in a fee that
is included in the Charges that Cannot Increase category on the Fee
Variance Worksheet. Encompass provides a Fee Variance Violated
Alert if any fee in this category increases after being disclosed
without, unless there is an applicable changed circumstance or
borrower requested change.
In the example shown below, the lender knew that the subject
property was located in a rural area far from the suburban area
originally indicated by the user, so the appraiser has increased
the appraisal fee from $350 to $450 after the fee was disclosed to
the borrower. Because the appraisal fee was included in the Charges
that Cannot Increase category and the lender has no basis for a
changed circumstance, the increase results in an Encompass Fee
Variance Violated Alert of$100.
Option 1: Redisclosing the Loan Estimate Without a Valid Change
of Circumstance A lender may decide to resolve the Fee Variance
Violated by adding a specific lender credit for the appraisal fee
and then redisclosing the Loan Estimate without indicating a valid
change of circumstance. A user may create the specific lender
credit by entering the credit amount in the Lender POC or Lender
PAC field on the Fee Details window for a specific fee on the 2015
itemization. To Complete the Resolution for Option 1:
1. On the 2015 Itemization, add $100 to the $350 Appraisal Fee
to bring it to $450.
2. A fee variance violated alert displays on the Alerts &
Messages tab in the Loan Log.
3. The variance displays in the Charges that Cannot Increase
section on the Fee Variance worksheet.
4. On the 2015 Itemization form, click the icon to the left of
the Appraisal Fee to open the Fee Details window, and then enter
the specific lender credit in one of the Lender amount fields.
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5. On the Loan Estimate Page 1, select the Other option in the
Reason section, and then enter an appropriate description.
6. Leave the Changed Circumstance section blank.
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7. Redisclose the Loan Estimate.
8. When you redisclose the Loan Estimate to the borrower, the
Fee Variance Violated Alert clears.
9. On the Fee Variance Worksheet, the LE Baseline resets in the
Charges that Cannot Increase section.
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10. The LE Baseline also resets in the Items that Cannot
Decrease section and the lender credit is added in the appropriate
rows.
Option 2: Disclosing the Closing Disclosure Without a Valid
Change of Circumstance A lender may decide to resolve a Fee
Variance Violated Alert by adding a specific Lender Credit and then
disclosing the Closing Disclosure without indicating a valid
Changed Circumstance. The steps involved are the same as those
described in Option 1, with the following differences:
Do not select a Reason option on the Loan Estimate Page 1.
Disclose the Closing Disclosure instead of redisclosing the Loan
Estimate.
1. On the 2015 Itemization, add $100 to the $350 Appraisal Fee
to bring it to $450.
2. A fee variance violated alert displays on the Alerts &
Messages tab in the Loan Log.
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3. The variance displays in the Charges that Cannot Increase
section on the Fee Variance worksheet.
4. On the 2015 Itemization form, click the icon to the left of
the Appraisal Fee to open the Fee Details window, and then enter
the specific lender credit in one of the Lender amount fields.
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5. On the Closing Disclosure Page 1, select the Other option in
the Reason section, and then add an appropriate description.
6. Complete required fields on the Closing Disclosure form, and
then disclose the Closing Disclosure.
7. The fee variance violated alert does not clear.
Note: Encompass clears the Fee Variance Violated Alert only when
you select a valid Changed Circumstance option on the Closing
Disclosure Page 1.
8. On the Fee Variance worksheet, the LE Baseline is now used
for the CD Baseline because there is no valid changed circumstance
for the outstanding fee variance.
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9. In the Items that Cannot Decrease section, the lender credit
is added in the appropriate rows in the Itemization column.
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Using Option 2 to Offset an 801 Fee For a loan with an
origination credit (i.e. credit for rate or rebate), if you are
using Option 2 to resolve a fee variance violated alert associated
with a fee in the 801 section, you need to complete the additional
steps shown below. Otherwise, Encompass assumes the specific lender
credit is being applied from the origination credit (in other
words, Encompass assumes the specific fee paid by Lender is coming
from the origination credit and will reduce such origination credit
until it reaches $0.00). In this example, a lender wants to resolve
a fee variance violated alert associated with an increase in the
Underwriting Fees from $250 to $350.
After increasing the borrower amount in the 2015 itemization, a
user would increase the lender credit entered on Line L in the
Details of Transaction section at the bottom of the 2015
Itemization in order for Encompass to be able to offset the
increase with a general lender credit.
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Scenario 3: Unintentional Fee Baseline Increases Unintentional
fee baseline increases can occur under particular conditions where
fees may be added to the Loan Estimate or Closing Disclosure that
are not associated with valid changed circumstances and should not
contribute towards the baseline or legal limit increasing. For
example, after the initial Loan Estimate is sent to the borrower,
one or more fees in the Charges that in Total Cannot Increase More
Than 10% category might increase enough to cause the total amount
of fees in the 10% category to exceed the 10% category variance
limit. In this example, however, some of the increased fees are a
result of a recognized changed circumstance reason and some of the
increased fees are not. Since the redisclosure event is based on a
recognized changed circumstance reason, the Fee Variance Worksheet
(which cannot distinguish between fees that are based upon a valid
change and fees that may be the result of an invalid change)
updates the baseline based on the total increase in fees exceeding
the prior baseline or legal limit.
Because there was no valid reason for redisclosing some of the
10% category fees, the updated baseline and legal limit for the 10%
category fees on the Fee Variance Worksheet display an inflated
revised baseline amount, which you need to adjust in order for the
Fee Variance Worksheet to complete the analysis. To resolve this
situation, adjust the amounts on the Fee Variance worksheet by
using the Baseline Adjustment fields, and then resolve any fee
variance violated alert that may occur. For example:
1. The initial Loan Estimate is disclosed with an interest rate
of 3.5% and a Pest Inspection Fee of $250.00. For purposes of this
example, the Pest Inspection Fee falls in the Charges that in Total
Cannot Increase More Than 10% category.
The aggregate total for the Charges that in Total Cannot
Increase More Than 10% fees is $375.00 and the Legal Limit (the
amount beyond which the fees exceed the 10% category variance) is
$412.00.
2. After the initial Loan Estimate is sent, the pest inspection
service informs you that the Pest Inspection Fee has increased from
$250 to $300. The increased amount for the Pest Inspection Fee is
entered on the 2015 Itemization.
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3. The adjusted Pest Inspection Fee increases the aggregate
total for the Charges that in Total Cannot Increase More Than 10%
to $425.00. This amount is 13% higher than the disclosed amount and
exceeds the variance for 10% category fees as shown in the Legal
Limit fields. However, you decide not to remedy the fee variance
until all the fees in the 10% category are finalized.
4. The interest rate is then locked at 3.75%. Because the rate
was initially disclosed at 3.5%, you need to redisclose the Loan
Estimate. On the Loan Estimate, Page 1, in the Reasons section,
select the Interest Rate dependent charges (Rate Lock) check
box.
5. Select the Changed Circumstance check box, click the Lookup
icon (magnifying glass) to select a description of the changed
circumstance, and enter comments as needed.
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6. When the Loan Estimate is re-disclosed, the increased fees in
the Charges that in Total Cannot Increase More Than 10% category
are carried over as unintentional fees that will inflate the
baseline. The Fee Variance Worksheet recalculates the Disclosed
Amount, Legal Limit, and baseline amounts for these fees and fee
category in the LE Baseline column.
In this example, you would need to address the following
issues:
The Variance between the LE and Itemization amount has been
reset to 0.00, even though there is still a variance between the
Itemization and the fees disclosed on the initial Loan
Estimate.
The baseline amount and the Legal Limit (the highest amount
allowable for the 10% category fees before they exceed the
variance) need to be adjusted to match the amounts from the initial
disclosure.
You may need to resolve a fee variance violated alert in the
loan file.
Note: If the aggregate total for the 10% category fees does not
exceed the 10% variance when the redisclosure is issued, the Fee
Variance Worksheet updates the Disclosed Amount, but continues to
use the baseline and Legal Limit amounts from the initial
disclosure as shown below. In this example the Pest Inspection Fee
increased by $25.00, which is 6% of the initially disclosed
amount.
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7. Enter the amount of the fee increase for the Charges that in
Total Cannot Increase More Than 10% in the Baseline Adjustment
field in the LE Baseline column. In this scenario, the fees have
increased by $50.00. Entering the variance amount in the Baseline
Adjustment field reduces the variance, baseline, and legal limit
amounts.
After you enter the Baseline Adjustment amount:
The Net Good Faith Baseline and the Legal Limit (Net Baseline +
10%) amounts is reduced to the prior baseline amounts for the Loan
Estimate.
The Variance between LE and Itemization amount shows the amount
in excess of the 10% category variance. In this scenario, the
excess is $12.50.
8. To resolve a fee variance violated alert, you may enter the
excess $12.50 on the 2015 Itemization in the Details
of Transaction section as a Lender Credit in Line L.
The lender credit displays in the Items that Cannot Decrease
section at the top of the Fee Variance Worksheet.
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Scenario 4: How a Cure Affects the Text on the Closing
Disclosure Output Form This scenario illustrates the language
Encompass adds to the Closing Disclosure output form when you cure
a fee variance violated alert. In this scenario, a fee variance
violated alert occurs after a Loan Estimate has been disclosed. An
increase in the Recording Fees triggers the fee variance violated
alert limit for the Charges that in Total Cannot Increase by More
than 10%.
1. On the 2015 Itemization form, the Recording Fees amount is
updated from $125.00 to $350.00.
2. On the Fee Variance Worksheet, in the Charges that in
total Cannot Increase More than 10% section, the
updated fees display in the Itemization column.
3. The updated fees ($600.00) in the Charges that in total
Cannot Increase More than 10% category now
exceed the Good Faith Baseline ($412.50) for the fees disclosed
on the Loan Estimate. The fee variance is $187.50.
4. A Good Faith Fee Variance Violated alert is
triggered and displays on the Alerts & Messages tab in the
Loan
Log.
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5. To apply a cure, click the fee variance violated alert entry
in the Loan Log, and then click the Cure Variance button on the
alert window.
6. On the pop-up window, enter or select a resolution
date, enter the Applied Cure Amount, add a comment to
explain how you are curing the fee variance, and then click
OK.
7. The fee variance violated alert does not clear, but
Encompass adds a Variance Cured entry to the Log tab in the
Loan Log.
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8. Text is added to page 2 on the Closing Disclosure output
form.
9. In Line L in the Details of Transaction section on the
2015 Itemization, select the Lender Credit option and enter
the amount.
10. Select the appropriate options for the Reason
and Changed Circumstance sections on the Closing Disclosure
Page 1, and then redisclose the Closing Disclosure.
11. Note that the fee variance violated alert does not
clear after the disclosure is reissued.
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