What are the three good faith tolerance levels in mortgage lending?

The correct answer outlines the three good faith tolerance levels established under the Real Estate Settlement Procedures Act (RESPA) guidelines. The three categories include zero tolerance, 10% tolerance, and unlimited tolerance.

Zero tolerance means that charges cannot exceed the amount disclosed on the loan estimate at closing. Any discrepancies will warrant a refund to the borrower, ensuring that the lender is held accountable for the costs they presented initially.

The 10% tolerance category applies to certain charges where the total of the fees charged can vary, but not exceed the disclosed amount by more than 10%. This allows for slight fluctuations in costs while still providing transparency and a level of protection to the borrower.

Unlimited tolerance refers to fees that do not have restrictions on how much they may vary from the originally disclosed amounts. For example, fees for services that the borrower chooses themselves, like an appraisal, fall into this category, allowing lenders greater flexibility in their cost disclosure.

This framework is designed to ensure clarity and fairness in mortgage lending, allowing borrowers to understand and anticipate their financial commitments accurately. Understanding these tolerance levels is fundamental for compliance in the mortgage lending industry.