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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