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A tolerance cure is the payment required when actual closing costs exceed the amounts disclosed on the Loan Estimate, beyond the limits allowed by TRID (TILA-RESPA Integrated Disclosure). The party responsible for the cure pays the difference so that the borrower is not charged more than the tolerance allows.

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Fee tolerance bands

Once the Loan Estimate is provided, fees fall into three tolerance categories under TRID. The following lists what is included in each band.

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Zero tolerance (cannot increase)

Fees in this category cannot increase at all between the Loan Estimate and closing unless a valid change of circumstance (or other triggering event) allows a revised Loan Estimate. Included in zero tolerance:
  • Charges paid to the creditor, mortgage broker, or their affiliates — Origination charges, application fees, underwriting fees, processing fees, and similar lender or broker fees
  • Credit report fees — When paid to or retained by the creditor or its affiliate
  • Lender-required services the borrower cannot shop for — For example, appraisal fees when the lender selects the appraiser (the fee is set by the lender’s provider)
  • Transfer taxes — Government transfer taxes (treatment can vary by state; creditors must apply the correct tolerance)
If any of these fees increase at closing beyond the amount on the Loan Estimate (absent a valid revised LE), the overage must be cured—the borrower cannot be charged the increase.

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10% tolerance (aggregate)

The total of all fees in this category can increase by no more than 10% of the total that was disclosed for this category on the Loan Estimate. The limit is on the aggregate, not each line item. Included in 10% tolerance:
  • Recording fees — Deed recording, mortgage/trust deed recording, subordination recording, and other government recording charges
  • Services the borrower could shop for but chose from the creditor’s list — When the creditor provides a list of providers and the borrower selects from it (or the creditor selects), the charges are in this bucket. Examples:
    • Title services (lender’s title insurance, title search and examination, settlement/escrow fees)
    • Survey
    • Pest inspection, septic inspection, well water inspection
    • Other third-party services where the provider was from the creditor’s list
If the sum of all 10% bucket fees at closing exceeds 110% of the sum disclosed on the Loan Estimate, the overage must be cured.

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Unlimited tolerance (no cap)

Fees in this category may increase at closing without a cure. Included in unlimited tolerance:
  • Prepaid items — Property taxes, homeowner’s insurance, prepaid interest, initial escrow/reserves, and similar prepaids
  • Services the borrower could shop for and chose their own provider — When the borrower selects a provider that is not on the creditor’s written list, the charge is unlimited tolerance (subject to good faith)
  • Optional owner’s title insurance — When the borrower shops and selects a provider not on the creditor’s list
If the final fee (or category total, where applicable) exceeds the disclosed amount by more than the tolerance allows, a cure is owed. The cure is the amount that brings the charge back within tolerance—typically paid by the lender or its designee so the borrower is not overcharged.

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What resets the baseline

The baseline for tolerance comparison is the fee amounts on the most recent Loan Estimate (or revised Loan Estimate) provided to the borrower. Tolerance is measured against that baseline at closing. The baseline resets whenever a new or revised Loan Estimate is issued—so the comparison is always to the last disclosed estimate, not the very first one. Common events that lead to a revised Loan Estimate (and thus a new baseline) include:
  • Valid change of circumstance — e.g. changed circumstances affecting settlement charges or eligibility (new information, correction of prior inaccuracy, or events beyond the lender’s control)
  • Borrower-requested changes — e.g. the consumer asks for a different rate, product, or term
  • Rate lock — interest rate-dependent charges can be updated when the rate is locked
  • Expiration — the quoted fee expiration date on the original Loan Estimate has passed, and a new estimate is provided
Once a revised Loan Estimate is provided, it becomes the new baseline for tolerance. Closing costs are then compared to the amounts on that revised LE, not the original.

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Pylon’s responsibility

Pylon is responsible for all tolerance cures and represents and warrants all files. Pylon bears the financial risk if fees exceed tolerance limits, so lenders are protected from tolerance violations. In practice, fees are set within tolerance bands at initial disclosure; when third parties (e.g. title companies) send final fee amounts via the API, the expectation is that those amounts stay within the disclosed tolerances.