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#1788461 - 02/22/13 04:57 PM principal reduction from excess lender credit
aliasg Offline
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Joined: Jul 2007
Posts: 148
MD
My understanding is that lender pricing credits shown on line 802 that exceed the amount of settlement charges to the borrower must be applied as a principal reduction. Is the principal reduction shown on the HUD-1? If so what line does it go on?

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#1788477 - 02/22/13 05:21 PM Re: principal reduction from excess lender credit aliasg
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 79,339
Galveston, TX
Where does this understanding come from? Why couldn't the borrower just receive cash back?
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#1788488 - 02/22/13 05:45 PM Re: principal reduction from excess lender credit aliasg
aliasg Offline
100 Club
Joined: Jul 2007
Posts: 148
MD
oops sorry. It is not a cash out refi.

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#1788517 - 02/22/13 06:26 PM Re: principal reduction from excess lender credit aliasg
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,768
Bloomington, IN
A principal reduction to the borrower is a cash back/out to the borrower. The only difference it's being applied to the principal as part of the loan transaction instead of being paid directly to the borrower.

Showing these as a principal reduction in the 200 series of the HUD may satisfy investor's requirements that it is not a cash out refinancing but the principal reduction will trigger rescission (if a consumer purpose refinancing transaction) because it is new money to the consumer. Doesn't matter if the consumer received it directly and applies it to the principal or has it indirectly applied such as the entry on the HUD.

BTW, to the best of my knowledge there is no such requirement:

My understanding is that lender pricing credits shown on line 802 that exceed the amount of settlement charges to the borrower must be applied as a principal reduction.

You have the option to apply it as a principal reduction or cut the borrower a check.
Last edited by Dan Persfull; 02/22/13 06:37 PM.
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#1788524 - 02/22/13 06:34 PM Re: principal reduction from excess lender credit Dan Persfull
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,768
Bloomington, IN
Click here for a previous discussion on the principal reduction and ROR.
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