Scenario: ABC Lender receives a mortgage loan application and processes it with the full intent of selling the loan to LMN Investor. After documentation is gathered the full application will be underwritten by LMN Investor's staff then, assuming approval, will be closed naming ABC Lender as mortgagee then assigned.

Loan servicing will be transferred to LMN Investor's master servicer, XYZ Servicing, immediately after closing. It's known up-front that XYZ Servicing will charge ABC Lender a $65 Tax Service Fee and that fee will be deducted from the amount LMN Investor pays to ABC Lender upon purchasing the loan.

Since ABC Lender is not directly paying the third party Tax Service provider, but is, in essence, paying funds collected from the borrower to LMN Investor and passed through to XYZ Servicing who will pay the provider, should that fee still be disclosed in Block 3 of the GFE or should it be included in Block 1?

Block 1 - you are charging them a fee that is a secondary market fee that you have to pay in order to sell the loan long after the borrower's loan closes.

The money is not going to the originating bank or to the investor. It's going to a third party tax service provider. Whether that's the ultimate servicer of the loan that you identified as XYZ Servicing or another tax service provider company should be shown on the HUD as such.

According to the FAQ, p.32 2) all third party settlement services (specifically including tax service) but except title services go in Block 3 of the GFE.

I know this was discussed at length in prior threads...the common problem is whether or not you know up front who the ultimate recipient of that TS money is.

If you do, it's Block 3. If you don't, it almost has to go in Block 1 since you are going to pass it on to the borrower.

XYZ Servicing will charge ABC Lender a $65 Tax Service Fee and that fee will be deducted from the amount LMN Investor pays to ABC Lender upon purchasing the loan

Truffle - explain again to me how this is a settlement fee involving the loan?? It involves the sale. Whether the bank knows or does not know who is going to do it, it is not a settlement fee. It is a fee the bank is going to be charged to sell the loan. As such, if the bank wants to recoop that fee from the borrower, it is purely a Block 1 charge.

Settlement service means any service provided in connection with a prospective or actual settlement.

I disagree, Randy. Besides the FAQ I quoted above specifically identifying the tax service as going in block 3, the fact is the tax service fee is not a fee that the bank is going to be charged. We charge the fee on all loans, including those we service in house. How is that not a settlement fee the same way the flood monitoring fee is?

TR- as always, you are free to disagree. I have my opinion based on the definitions within the regulation and you have yours based on a FAQ that I do not feel is applicable to the OP's situation. This is a charge they are assessing to recoup a secondary market fee.

You don't disclose yield spread premiums you receive when you sell the loan, why would you disclose costs associated with the sale.

Now, if you (the bank) purchases the tax service on every loan at the time of closing and have the specific tax service provider to list on the HUD-1, I would treat that differently and maybe that is what you are referring too.

There is a long thread where this was discussed before and there is no need to rehash it. The OP can make up their own mind on how best to handle it for their bank.

TR - I agree with Randy. I have a feeling your setup knows who the provider will be and it's the same provider for each deal. In that case, Block 3 is appropriate.

In the OP's situation, it appears to be an unknown. Any unknown, but passed on to borrower fee would have no other place to go but the origination charges.

^^^Agreed.

I agree too. However no where do I see that the OP indicates he won't know who the third party is. If LMN says the fee is payable to a specific vendor, I stand by the FAQ that says Block 3.

We list the fee in Block 3 of the GFE and are having the same issue of who to show the fee payable to. Not all the investors use the same company, so sometimes we don't know who the vendor will be.

Would you suggest to revise that process and include the fee in our Block 1 charges?

"XYZ Servicing will charge ABC Lender a $65 Tax Service Fee and that fee will be deducted from the amount LMN Investor pays to ABC Lender upon purchasing the loan."

The bank is not paying anything, they are being charged to sell the loan.

Mrs. Rizzo, yes, I would be putting that in Block 1. YOu are passing the fee to the borrower because you will be dinged for it when you sell the loan. You are not paying a 3rd party directly to handle the tax service.

Gotcha. Makes perfect sense.

Many thanks fellow compliance sufferer's