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#2011128 - 04/29/15 08:48 PM Lender Credit for Appraisal
Serendipity Offline
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Just want to make sure I'm correct on this.

If the lender offers a credit towards the cost of the appraisal, and the appraisal cost ends up being lower than the credit, the lender cannot reduce credit.

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TRID - TILA/RESPA Integrated Disclosures Rule
#2011133 - 04/29/15 08:59 PM Re: Lender Credit for Appraisal Serendipity
Indy Banker Offline
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If you are asking about under current RESPA rules, it depends on how the proposed credit is offered the applicant. If a lender credit is disclosed on the GFE for the appraisal, then yes you are bound by that credit amount and if the appraisal is less you still owe the applicant the full amount of the lender credit disclosed. Some banks, however, just verbally inform or with a side notice that they will issue a credit for the cost of the appraisal at closing, with no credit disclosed on the GFE. At closing, they disclose a "lender credit" on the HUD-1 for the exact amount of the appraisal.

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#2011142 - 04/29/15 09:12 PM Re: Lender Credit for Appraisal Serendipity
ahou Offline
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Correct.
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#2011155 - 04/29/15 10:12 PM Re: Lender Credit for Appraisal Serendipity
Serendipity Offline
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@bike4life - Question was in regard to new rules, but you bring up a good point!

I think currently they advertise the appraisal credit to be "applied at closing".

Are we required to list the credit on the Loan Estimate? Or can we just add it to the Closing Disclosure, similar to what happens today with the HUD-1, as you stated?

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#2011164 - 04/30/15 01:45 AM Re: Lender Credit for Appraisal Serendipity
John Burnett Offline
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New Comment 37(g)(6)(ii):

1. Lender credits. Section 1026.19(e)(1)(i) requires disclosure of lender credits as provided in § 1026.37(g)(6)(ii). Comment 19(e)(3)(i)-5 describes such lender credits as payments from the creditor to the consumer that do not pay for a particular fee on the disclosures provided under § 1026.37.

2. Credits or rebates from the creditor to offset a portion or all of the closing costs. For loans where a portion or all of the closing costs are offset by a credit or rebate provided by the creditor (sometimes referred to as “no-cost” loans), whether all or a defined portion of the closing costs disclosed under § 1026.37(f) or (g) will be paid by a credit or rebate from the creditor, the creditor discloses such credit or rebate as a lender credit under § 1026.37(g)(6)(ii). The creditor should ensure that the lender credit disclosed under § 1026.37(g)(6)(ii) is sufficient to cover the estimated costs the creditor represented to the consumer as not being required to be paid by the consumer at consummation, regardless of whether such representations pertained to specific items.

If you read only the first paragraph, the impression you would get is that you only disclose lender credits that do not pay for a particular fee on the disclosures. But the second paragraph makes it clear, I think, that you need to include both lender credits for specific costs and those that are general credits (not for specific costs).

The difficulty is, of course, that if the costs for which there are specific credits should be lower at closing, you are committed to the higher credit given on the loan estimate.
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#2011324 - 04/30/15 05:14 PM Re: Lender Credit for Appraisal John Burnett
Serendipity Offline
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Thank you, John. That pointed me in the right direction. So I'm gather that 1) You have to disclose credits for specific fees and 2) You cannot reduce the credit for specific fees.

In looking at 19(e)(3)(i)-5, it gives the exact example:

5.Lender credits.
The disclosure of “lender credits,” as identified in § 1026.37(g)(6)(ii), is required by § 1026.19(e)(1)(i). “Lender credits,” as identified in § 1026.37(g)(6)(ii), represents the sum of non-specific lender credits and specific lender credits. Non-specific lender credits are generalized payments from the creditor to the consumer that do not pay for a particular fee on the disclosures provided pursuant to § 1026.19(e)(1). Specific lender credits are specific payments, such as a credit, rebate, or reimbursement, from a creditor to the consumer to pay for a specific fee. Non-specific lender credits and specific lender credits are negative charges to the consumer. The actual total amount of lender credits, whether specific or non-specific, provided by the creditor that is less than the estimated “lender credits” identified in § 1026.37(g)(6)(ii) and disclosed pursuant to § 1026.19(e) is an increased charge to the consumer for purposes of determining good faith under § 1026.19(e)(3)(i). For example, if the creditor discloses a $750 estimate for “lender credits” pursuant to § 1026.19(e), but only $500 of lender credits is actually provided to the consumer, the creditor has not complied with § 1026.19(e)(3)(i) because the actual amount of lender credits provided is less than the estimated “lender credits” disclosed pursuant to § 1026.19(e), and is therefore, an increased charge to the consumer for purposes of determining good faith under § 1026.19(e)(3)(i). However, if the creditor discloses a $750 estimate for “lender credits” identified in § 1026.37(g)(6)(ii) to cover the cost of a $750 appraisal fee, and the appraisal fee subsequently increases by $150, and the creditor increases the amount of the lender credit by $150 to pay for the increase, the credit is not being revised in a way that violates the requirements of § 1026.19(e)(3)(i) because, although the credit increased from the amount disclosed, the amount paid by the consumer did not. However, if the creditor discloses a $750 estimate for “lender credits” to cover the cost of a $750 appraisal fee, but subsequently reduces the credit by $50 because the appraisal fee decreased by $50, then the requirements of § 1026.19(e)(3)(i) have been violated because, although the amount of the appraisal fee decreased, the amount of the lender credit decreased. See also § 1026.19(e)(3)(iv)(D) and comment 19(e)(3)(iv)(D)-1 for a discussion of lender credits in the context of interest rate dependent charges.

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#2011332 - 04/30/15 05:36 PM Re: Lender Credit for Appraisal Serendipity
raitchjay Offline
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OK
Just for clarity's sake (i'm not stating that you are saying this Serendipity), you can't reduce non-specific lender credits either.
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#2011366 - 04/30/15 06:18 PM Re: Lender Credit for Appraisal Serendipity
John Burnett Offline
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The only time a lender credit can be reduced after the initial LE has been issued is when it is in connection with a changed circumstance affecting interest-rate related costs, and the amount of the lender credit would have to be related to the interest rate. Example? Borrower decides after LE issued that he wants to reduce the points (with an increase in rate) to have more funds available at closing, and there is a relationship wo the lender credit.
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#2011377 - 04/30/15 06:37 PM Re: Lender Credit for Appraisal Serendipity
raitchjay Offline
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OK
Thanks for pointing that out John. We're not a 'points' bank here, so i didn't even consider that angle.
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#2012011 - 05/05/15 01:11 PM Re: Lender Credit for Appraisal Serendipity
Indy Banker Offline
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Ok, so let's go "real world" here. Suppose at application, no lender credit is discussed or on the table. Subsequent to loan application, the loan officer decides to give the borrower a credit toward the loan fees. Since the lender credit wasn't disclosed on the original LE, does this require re-disclosure of the LE or can the credit just be disclosed on the Closing Disclosure?
Last edited by Indy Banker; 05/05/15 02:57 PM.
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#2012021 - 05/05/15 01:31 PM Re: Lender Credit for Appraisal Serendipity
John Burnett Offline
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I imagine that you meant to say the decision to provide the credit occurs subsequent to sending the Loan Estimate rather than after consummation.

No, there would be no need to provide a new Loan Estimate in such a situation. It doesn't qualify as a changed circumstance because it's not an increased charge. It does place the institution in a less favorable "loan shopping" position, all other things being equal, than the institution that includes the lender credit for an appraisal in the Loan Estimate, but since we're talking "real world" here, and a lot of applicants don't really shop for the best deal, that wouldn't be a big deal.

The lender would, of course, include the lender credit as a pleasant surprise for the borrower on the Closing Disclosure.

And, since we're gong "real world" here, let's also acknowledge that there are lenders right now that follow a variation of this practice by deliberately "low-balling" their lender credits on Good Faith Estimates in order to avoid being committed to disclosed credits on the GFE intended to cover specific services that end up costing less than the estimated costs on the GFE. Those lenders have been advising applicants "off-GFE" of intended credits for appraisals and other loan-related costs.

I frankly don't know the regulators' view of such tactics. The practice has the mark of the "nudge, nudge, wink, wink" attitude that regulators typically aren't fond of.

But if the lender in your hypothetical is "of pure heart" and has no other motive for the late decision to credit the borrower for the appraisal fee, there would not be a problem.
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#2012064 - 05/05/15 03:01 PM Re: Lender Credit for Appraisal Serendipity
Indy Banker Offline
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Thanks, John for picking that up - yes I meant to say subsequent to application (issuing the LE). Good advice on the lender credits.

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#2012291 - 05/06/15 12:13 AM Re: Lender Credit for Appraisal Serendipity
Serendipity Offline
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In talking "real worl", if we're specifically advertising a credit towards appraisal costs, we should be disclosing that credit on the Loan Estimate, correct?

I'm not seeing that it says exactly that in relation to advertising, but I could see how if we didn't disclose it, it could be seen as an issue.
Last edited by Serendipity; 05/06/15 12:14 AM.
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#2012308 - 05/06/15 12:52 PM Re: Lender Credit for Appraisal Serendipity
John Burnett Offline
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When it's advertising you're looking at, the problems usually crop up when you fail to deliver what was advertised, or when the advertising misleads rather than informs the consumer.
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#2038442 - 09/14/15 09:11 PM Re: Lender Credit for Appraisal Serendipity
Lakeminded Offline
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John,

If the Loan Estimate was provided to the consumer and a fee in the Cannot Shop for category comes in higher, and not because of a valid circumstance, but because it was misquoted price (let's say appraisal) and we plan to issue a lender credit to cure the violation on the Closing Disclosure - are required to issue a revised LE to reflect the credit in advance of the CD. - Two weeks before TRID and we have now entered the "rumor" zone. I may be wrong, but I don't feel that tolerance cure fits into the reasons to reissue an LE. We aren't increasing any consumer costs nor impeding their ability to shop....

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#2038448 - 09/14/15 09:42 PM Re: Lender Credit for Appraisal Serendipity
rlcarey Offline
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Not John, but recognizing that you will have an upcoming cure at the time that you issue the CloD does not trigger the reissue of a LE.
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#2038452 - 09/14/15 09:54 PM Re: Lender Credit for Appraisal Serendipity
Lakeminded Offline
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Thanks Randy - staff went to software training last week and they were told it was required to send a revised LE.
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#2038492 - 09/15/15 01:32 PM Re: Lender Credit for Appraisal Serendipity
John Burnett Offline
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Either staff misunderstood or the presenter of the training misspoke.
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#2063923 - 02/11/16 06:47 PM Re: Lender Credit for Appraisal Serendipity
BWitter Offline
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I am getting some push back from vendors and have also heard different opinions from various speakers on regards to lender credits and when they can/ cannot specifically decrease. I found this post and thought I would see if anyone has also heard or has feedback on this topic since TRID has now been implemented and banks are able to actually apply these rules.

John you posted the following about a year ago:

"The only time a lender credit can be reduced after the initial LE has been issued is when it is in connection with a changed circumstance affecting interest-rate related costs, and the amount of the lender credit would have to be related to the interest rate. Example? Borrower decides after LE issued that he wants to reduce the points (with an increase in rate) to have more funds available at closing, and there is a relationship wo the lender credit"

I agree with this comment. However, vendors and speakers have been saying that even with a valid change in circumstance a lender credit disclosed on an LE can NEVER decrease. All parties seem to be referring to the following section in the regulation.

1026.19(e)(3)(vi):
Revised estimates. For the purpose of determining good faith under paragraph (e)(3)(i) and (ii) of this section, a creditor may use a revised estimate of a charge instead of the estimate of the charge originally disclosed under paragraph (e)(1)(i) of this section if the revision is due to any of the following reasons:

(1026.19(e)(3)(vi)(D) Interest rate dependent charges. The points or lender credits change because the interest rate was not locked when the disclosures required under paragraph (e)(1)(i) of this section were provided. No later than three business days after the date the interest rate is locked, the creditor shall provide a revised version of the disclosures required under paragraph (e)(1)(i) of this section to the consumer with the revised interest rate, the points disclosed pursuant to § 1026.37(f)(1), lender credits, and any other interest rate dependent charges and terms.

Any thoughts would be appreciated. We often encounter similar situations like the one John noted in his earlier response where lender credits are impacted due to pricing changes that are customer requested.

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#2063927 - 02/11/16 06:52 PM Re: Lender Credit for Appraisal Serendipity
rlcarey Offline
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I don't understand. It appears to be pretty clearly stated and I am unsure as to your real question.

Give us an example.

When would you reduce a lender credit based on a chosen interest rate without a rate lock??
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#2063978 - 02/11/16 08:29 PM Re: Lender Credit for Appraisal Serendipity
BWitter Offline
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Example:
Loan amount = $200,000
Customer locks at time of application at a rate of 5% with a lender credit of 1% (amount listed on the LE under lender credit is 2,000) , two weeks later the customer comes in and requests that they would like to lower their rate so that their monthly payment is lower each month, they decide that a rate of 4.0% with a lender credit of .5% (amount listed on the LE under lender credit is now $1,000) would be best for them.

My question is, when there is a valid change in circumstance that reduces the lender credit disclosed on the previous LE and that change will decrease the amount of the lender credit is that permissible? or must the lender credit never decrease?

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#2063984 - 02/11/16 08:35 PM Re: Lender Credit for Appraisal Serendipity
rlcarey Offline
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If they re-locked at the lower interest rate and lower lender credit then it would be a changed circumstance and you would reissue the LE accordingly. I'm not sure why anyone would opine that the lender credit cannot change under this specific scenario.
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#2082841 - 06/10/16 02:04 PM Re: Lender Credit for Appraisal Serendipity
Bec Offline
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Dusting off this old thread to ask this question. If you have a lender that disclosed a lender's credit to cover an LLPA based on the anticipation that the LTV was going to require it. The appraisal came in higher than what was anticipated which lowered the LLPA. Would we be able to redisclose and lower the lenders credit?
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#2082844 - 06/10/16 02:07 PM Re: Lender Credit for Appraisal Serendipity
John Burnett Offline
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No. The lender credit is considered part of your loan pricing. It can only be changed if it's in connection with a rate change for the loan. The only example of an allowable lender credit decrease in the Commentary involves the addition of a rate lock.
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