We have a loan closing today where we will be paying an ouside appraiser to perform construction inspections (normally this is done by the bank's in-house appraiser). This is paid by the customer. According to 226.4(c)(7)(iv) we disclose the inspection fees as prepaid finance charge because the inspections are performed after closing.

However, in this case we will pay the fee to the 3rd party inspector, and will not charge the customer ---- is this considered a finance charge paid indirectly by the consumer? What does indirectly mean? Should it be disclosed as a ppfc POC by lender?

I'm confusing myself since normally we normally pass it on to the borrower.

If you (the bank) are paying the fees, without charging the borrower in any manner other than a slightly higher interest rate, they are disclosed as POC/L and not included in the APR calculaiton.

We can keep it out of the APR calculation, but do we still discose the fee as a POL prepaid finance charge on the TIL disclosure?

"Indirect" payment - it does not mean there's an assumption the lender is in some manner or other passing the cost to the borrower? Maybe I'm thinking of the mortgage broker fee rule.

If this is a "construction only" loan not subject to RESPA's HUD settlement statement requirement, then you need not disclose the fee if you are paying it.

However, if these fees are built into the appraisal fee, they are disclosable as PPFCs IMO.

And yes, this is a construction-only loan, not subject to RESPA.

Short answer yes. The "normal" appraisal fee is exempt in real estate transactions. Therefore, if your normal appraisal fee for this type transaction is $300, but you built in 4 $75 inspection fees and charged $600 for the appraisal, you have directly charged the customer the $300 inspection fees.

If anyone disagrees with this please chime in.

Gotcha. I appreciate your help.