The bank pays for the LOL coverage but the cost of the determination is passed on to the borrower. We currently list the determination charge in block 3 of the GFE and the 800 section on the HUD-1. We do not list the LOL charge anywhere on the GFE or HUD-1.

Is this proper?

No. The charge has to be disclosed. If the bank pays for it, then a credit could be shown in the 200 series.

Okay so it should show in the 200 series on the HUD as a credit. How should it be treated on the GFE. List the LOL in box 3 and then offset it with a credit in box 2?

We only have a small origination fee in box 1 - no ability to pay to obtain better rates. If we now put a credit in box 2, it seems misleading in that the borrower could change their interest rate by paying a fee.

Am I right that we need to offset those "lender paid" settlement charges on the GFE so that the total bottom line cost of credit is more accurate?

For that small of an amount, I would not show a credit on the GFE. The charge would appear in Box 3.