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Negotiated closing costs & no-closing cost loans
Question: We generally do not impose closing costs on our loan customers. Instead, we provide a no-closing-cost product. Several loan officers have pointed out that they believe they could negotiate closing costs with some customers, thus increasing our fee income. If we were to allow this, would we have fair lending problems?
Answer: Probably. By opening the door to negotiated closing fees, you are taking two huge risks. First, you are allowing your lenders to go after fees when they think a customer will pay them. If you add the adjective "gullible" to customer, you can quickly see that such a policy may be a motivation for loan officers to become predators. Even if rates are not negotiated, the increased cost of the loan because of the closing fees could quickly become an unfair practice.
Second, you need to consider the impact that such a practice could have on your customers by prohibited basis. Who is the loan officer most likely to target for payment of closing costs? The customer your loan officer perceives as gullible is most likely to be different from himself and from the stereotypical educated customer. To put it bluntly, such a policy is very likely to have an adverse impact on a prohibited basis. You can only establish this by letting the loan officers try out the new policy and then evaluating the results. But, of course, by then, you have documented discrimination on your hands.
Copyright © 2002 Compliance Action. Originally appeared in Compliance Action, Vol. 7, No. 2, 3/02
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