What may be a consequence of exceeding the 10% tolerance threshold on a Closing Disclosure?

When the Closing Disclosure reflects costs that exceed the 10% tolerance threshold, borrowers are entitled to receive a refund for the difference. This is in accordance with the rules set forth by the Consumer Financial Protection Bureau (CFPB) under the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA). These regulations are designed to protect consumers by ensuring that they are not subject to unexpected charges at closing that significantly deviate from what was initially disclosed in their Loan Estimate.

The 10% tolerance applies specifically to certain categories of fees, such as those for services provided by third-party providers that the borrower cannot shop for. If these fees increase beyond the threshold, lenders are obligated to issue a refund to cover the excess, ensuring that borrowers are only charged what they were initially led to expect. This mechanism is crucial for maintaining transparency and trust in the mortgage process.

Understanding this process helps ensure that both lenders and borrowers adhere to fair lending practices, minimizing surprises at closing and fostering a better financial experience for consumers.