So, we're going to offer $300 towards closing costs and I think we have a big problem.

The $300 must be disclosed in Block 2 on the GFE and line 802 on the HUD.

If the borrower also wants to buy down their rate, we must disclose the points paid in Block 2 on the GFE and on line 802 on the HUD; the same Block where the $300 has to be entered (according to RESPA’s FAQs, you cannot have a credit and a charge in the same transaction). For example: Borrower pays $1000 for a point/to buy down the rate; we pay $300. The two amounts (credit/charge) cause a problem because $700 will appear in Block 2 and Line 802, which also causes an IRS reporting issue for both the credit union and the member because the $700 figure is not accurate.

Lastly, I believe that regardless of whether we give the $300 at closing or whether we deposit the $300 into their account after closing we have the same problem because Freddie requires us to disclose the $300 no matter when we give the money.

Any advise as to how to handle this???

Don't disclose it on the GFE, show the closing credit in the 200 series of the HUD 1. That will eliminate your problem.

YOu can net it in block 2, or you can do as Dan suggests.

I thought that all credits by the lender had to appear in Block 2 on the GFE? And, in doing so, it carries over to the 800 series on the HUD?

Netting out points paid and lender credits gives a 'false' number and an incorrect IRS reporting amount.

So, Dan, you're saying that we do not disclose the $300 we are going to pay toward closing and disclose the $300 credit in the 200 series vs. the 800 series? Is there a citation that I can give managemen to back that up?

There is nothing in the FAQ that speaks to this particularly. You are allowed to give a credit to the borrower. A lot of banks elected NOT to show that credit on the GFE because once you enter a credit amount in Block 2, you MUST give the borrower that amount of money. HUD said it best. The GFE is now a WORST CASE SCENARIO. So give the GFE with all the costs and no credit in Block 2. Then tell the borrower or give them a letter with the GFE that states you will be giving them a $300 credit towards closing costs at closing.

Okay...thanks everyone for your help. I just wish HUD would speak to it more directly so that I had something a little more definitive to hang my hat on.

Joyce, you can show the net in block 2 if you are going to give that amount of credit no matter what. On the HUD you can list the percentage of points outside the box, much like you would do for the origination "point", for tax purposes. You will also be sending them a tax document that is more legal than a HUD will ever be.

Your other choice is to not show it, and as the others have indicated, give the credit at closing in the 200's section.