Creating an Accurate and Compliant Loan Estimate | Brimma Tech

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March 18, 2023 | 5 min read

Combining Data Validation, Repricing, and Compliance with Vallia Disclose

Mario DiBenedetto

Managing Director

When applying for a mortgage, the Loan Estimate disclosure is a critical document that outlines the loan terms and associated costs. The Loan Estimate must be accurate and comply with federal regulations, making it essential to validate data, reprice, adjust fees, and check compliance before generating this document. In this blog post, we will discuss the importance of each of these steps in creating a compliant and accurate Loan Estimate.

Validate Data

The first step in creating an accurate Loan Estimate is to validate the data used in the calculations. This means checking that all the information provided by the borrower is correct, including their income, credit score, debt-to-income ratio, and other relevant financial information. Incorrect data can lead to miscalculations and an inaccurate Loan Estimate, potentially causing confusion or even legal issues down the line.

Two of the key considerations for the data validation process are (a) to make sure it is comprehensive, and (b) ensure it is adaptive to the loan parameters. For the former, that means every validation needs to be explicitly enforced; No assumptions can be made that the validation was previously applied/enforced. For the latter, that means you cannot have a single set of validations that you try to apply to all loans; The validations most likely to be violated are those that vary based on loan parameters such as loan type, geography, property type, and investor.

How Vallia Disclose Can Help:

Vallia Disclose externalizes the data validations that are applied prior to generating the initial disclosure package. This frees it from any reliance on “upstream” systems or assumptions about the quality and completeness of the loan data. This approach not only yields more consistent results, it also reduces your technical debt by consolidating validation logic to a single place across all of the systems you use to originate loans.

Reprice

Once all the data has been validated, the loan officer )or their proxy) may need to reprice the loan based on current interest rates and other market factors. This ensures that the Loan Estimate reflects the most up-to-date loan terms and interest rates. Repricing can also identify any errors in the initial pricing, such as incorrect interest rates or fees, which can be corrected before generating the Loan Estimate.

How Vallia Disclose Can Help:

Vallia Disclose is able to integrate with most popular price engines and it can be set-up to automatically refresh pricing within a predefined set of boundaries. For example, it could be configured to automatically update pricing when the loan product has not changed and the current price is +/- 0.25 points. With this kind of automation built-in, it can happen automatically 80-90% of the time.

Adjust Fees

The next step in generating a Loan Estimate is to adjust the fees based on the loan terms and borrower qualifications. This includes evaluating the borrower's credit score, loan-to-value ratio, and other factors that affect the loan's risk profile. Fees can vary based on these factors, so it's essential to ensure that they are accurately calculated and disclosed to the borrower.

Most importantly, fees need to be assessed against the current loan data. Much like the “Validate Data” step, there can be no assumptions made as to how a fee was originally calculated. One the trickiest elements of this process involves knowing what fees have previously been manually entered or overridden, as opposed to those set by a third-party fees engine.

How Vallia Disclose Can Help:

Vallia Disclose gives a top-to-bottom view of the fees and allows your business-specific validations to drive what is allowable. In addition, Vallia Disclose can be configured to force a re-pull of fees from your third-party fee providers under specific circumstances where you want to ensure the latest fees are updated.

Check Compliance

Finally, it's crucial to check compliance with federal regulations before generating the Loan Estimate. This includes verifying that all fees and charges are disclosed accurately and clearly to the borrower to ensure that the loan complies with federal regulations, such as the Truth in Lending Act and the Real Estate Settlement Procedures Act. Additionally, attention needs to be paid to ensuring that the loan complies with the Qualified Mortgage rule and other relevant regulations. Non-compliance can result in legal penalties, so it's essential to make sure that the Loan Estimate meets all regulatory requirements.

How Vallia Disclose Can Help:

Vallia Disclose enforces what is one of the simplest, yet most often skipped, opportunities, which is to (re)call your compliance provider to ensure none of the data changed up until this time has had an adverse impact on its compliance. Like other elements of Vallia Disclose, this can be set-up so that it happens automatically AND it can be configured to disallow disclosure generation if any compliance violations are found.

In conclusion, the importance of validating data, repricing, adjusting fees, and checking compliance cannot be overstated when generating a mortgage Loan Estimate. These steps help ensure that the Loan Estimate is accurate, compliant, and reflects the borrower's actual loan terms and associated costs. Failing to take these steps seriously can result in significant legal and financial consequences for both the borrower and lender. By following these guidelines, loan officers and disclosure desks can help ensure that the Loan Estimate process is smooth and transparent for all parties involved. Vallia Disclose puts all of these tasks in one application, to make what is an otherwise cumbersome process, easy. And with built-in automations, it can dramatically reduce disclosure violations.

About Brimma

Founded in 2016, by a former executive of Ellie Mae, IBM, and Palisades Technology Partners, Brimma was created to deliver innovative software solutions to mortgage lenders who need holistic solutions to the technology problems that have plagued the industry for decades. We know the only thing you hate more than your LOS is the idea of implementing a new LOS. We have felt your pain…and it is what drives us to build solutions that recognize that technology for mortgage lenders is unique.

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