Dwayne Johnson refinances his current home mortgage with Rock Mortgage Corp. At the closing, he compares his Closing Disclosure to the Loan Estimate he was given shortly after he applied for the $500,000 loan. He notices that the Closing Disclosure shows some differences that he does not understand. First, the prepaid interest on the Closing Disclosure is $800 and the Loan Estimate estimated it to be $1. Second, the origination fee on the Closing Disclosure is $5,000 and it was estimated on the Loan Estimate to be $2,500. Finally, Dwayne notices that the fees for all title expenses are about $400 higher on the Closing Disclosure than as listed on the Loan Estimate. He also notices that the title company is called T. Rock Title Corp., which seems like an unlikely coincidence. When he asks his loan consultant, Jason, why the estimate was so far off, Jason tells him that since they did not know when the closing would occur, Rock Mortgage always uses $1 to fill in the blank for prepaid interest. Jason assures Dwayne that it is perfectly acceptable since TILA allows for an unlimited tolerance when it comes to prepaid interest. Jason also explains that since interest rates went up and Dwayne didn’t lock in the interest rate disclosed, the higher origination fee was due to a changed circumstance and was charged to offset Rock Mortgage Corp.’s higher cost to maintain the same rate. Finally, Jason admits that T. Rock Title Corp. is affiliated with Rock Mortgage Corp. but says that Dwayne had the option of choosing another title company from the written list of providers sent to him when he received the Loan Estimate and he chose not to do so. Dwayne then tells Jason that he never received a written list of providers and that he didn’t know the name of the title company before seeing it on the Closing Disclosure. Jason excuses himself and comes back a few minutes later. He tells Dwayne that he checked with the loan processor and confirmed that, due to a clerical error, the written list of providers was not sent with the Loan Estimate. He apologizes for the mistake but tells Dwayne that there is good news. It turns out that the increased title charges caused the aggregate settlement charges subject to TILA’s 10% tolerance to be exceeded by $150 and that Dwayne is entitled to a refund of the excess amount. Jason explains to Dwayne a check will go out to him about 90 days after closing.

Is Jason correct that prepaid interest is generally subject to an unlimited tolerance? Why or why not?

In this case, will the change in the prepaid interest amount be deemed a violation of TILA? Why or why not?

Is Jason accurate in his explanation that origination charges will increase when interest rates increase after initial disclosure? Why or why not?

The origination fee paid to Rock Mortgage is subject to what tolerance for change after the initial disclosure?

Jason told Dwayne that the increase in the title charges caused the aggregate settlement charges to increase by more than the allowed 10%. In this case, why would the charge for the title company be subject to zero tolerance for change?