I have a primary residence purchase loan where the seller is paying the loan origination fee for the buyer. Would I still show that origination fee as pre-paid finance charge and include it in the APR calculations?

Thank you!

No. Only fees the borrower is paying are included in the APR/FC.

So, to get this straight. Even if the Bank charges a borrower an origination fee and the seller pays it, it is not a finance charge, right?

What do you think about this finance change description then:
"For a charge to be a finance charge it must
pass three tests. It must be: §226.4(a)
• Payable directly or indirectly by the
consumer..."
Wouldn't a seller-paid loan origination fee be "payable indirectly by the consumer"?
I think I am just lost in the legal language :-)

All closed-end Reg. Z questions can be answered in part by Section 226.17(c)(1): The disclosures shall reflect the terms of the legal obligation between the parties. If the credit contract (including all addenda and riders) says the seller is obligated to pay the fee, then it's not a FC. If the credit contract says nothing or clearly says it's the borrower's responsibility, then it's a FC. Side agreements between seller and borrower don't change the answer unless the lender is a party to them.

In other words, if the offer to purchase agreement between the buyer and seller is the only document that states the seller is paying the buyer's loan origination fee, then we need to treat the origination fee as a prepaid finance charge. Correct?

That's the conservative approach--if in doubt, disclose. It shouldn't take too much effort, however, to pull the buyer/seller agreement into the lending agreement. Incorporating the contract of sale into the commitment letter by reference, for example, might be enough to make it a 3-party agreement. This should be a simple question for your bank's attorney. Save the response as evidence why you adopted such a procedure.

We've always taken the conservative approach, due to the "directly or indirectly" wording.

OK-We've run into this today-so just to make sure I understand all this-We have a borrower who is refinancing his current home and purchasing another-a blanket loan. The seller says (in the PA) he will pay $2000 (it doesn't say "up to") towards closing cost, prepaids, escrow and insurance. All these items actually come to $2800.00. (keep in mind this is on both houses.) We have no wording in our commitment letter tying it to the purchase agreement making it a 3-party agreement. Rather than pick and choose which of the $2800 in fees would be covered by the $2000, am I understanding that because the borrower is "indirectly" responsible for the FC fees, we could show all fees as normal, including all FC in the APR and give a $2000 credit on page 1 of the HUD-and we "may" be overstated but that would be OK right? Thank you.

"because the borrower is "indirectly" responsible for the FC fees,"

Without a contract between the bank and the seller - the borrower is "directly" responsibile for these fees.