Posting Anon for soon to be obvious reasons.

Recently discovered that one of our loan officers has discovered a new "trick" thanks to an accountant buddy of his. Sounds too good to be true, which means that it probably is. He is having the bank pay all closing costs for a particular loan. He is then charging the customer an equivilant amount in discount points, since they can be deductable as prepaid interest. Sounds even worse as I write it.

To top it off, does that have any fair lending consequences if he is only offering it to his "buddies"? I cringe for responses, but always appreciate help & opinions.

By the name of the line item 802 "Discount Points" that the customer is paying into would mean that the customer is "buying down the rate on the loan."

If the loan rate is the same as if there were no discount points being charged, then, IMHO, the bank could be cited for deceptive lending practices. (e.g. the loan rate is 6% - if someone paid 2 discount points, it should lower their rate to 5.75% - If they were charged 6% however, then the bank defrauded the customer.)

No matter who came up with the idea, remember that it is a bank transaction, and the bank, not the loan officer is responsible.

I would also be concerned with the potential negative publicity if the IRS came after the bank for an alledged scheme to defraud the government of tax dollars.