We currently offer a "no closing cost" loan in which we pay all third party fees. These fees are reimbursable to us if the borrower pays off within 3 years. We do not lock the rate. We guarantee the lower of the rate on the date of application or the rate three days prior to closing which currently allows us to reduce the credit at closing without having to pay the difference to the borrower because HUD's reg X did not allow a reduction in the credit at closing "if the rate was locked".

Based on the TILA/RESPA rules, we will not be able to credit a lower amount at closing without having to pay the difference to the borrower. I have seen conflicting information, but the way I am reading the new regulation, we MUST disclose all lender credits on the LE. Is this the case or can we, in fact, show no credit at all on the LE and mark all of the third party fees POCL on the Closing Disclosure?

Interesting question ----Is the credit you provided on the initial (LE f/k/a GFE)tied to the interest rate (pricing credit) or just lump amount to cover anticipated 3rd party charges? If the answer is a lump amount, how do you reduce the credit already disclosed (assuming applicate provided intent to proceed before it expired)?

I am also confused by your first paragraph. What do lender credits for a no cost loan and rate locks have in common?? Under what current regulatory citation are you allowed to lower lender credits?

The credit is tied to a product, not the rate. It is not a lump sum, but the exact total of the estimated third party fees. Based on the current RESPA rule, the credit could be less at closing without creating a tolerance issue "because the rate is not locked".
We have had multiple external and regulatory exams and have been found to be compliant.

With the upcoming regulation changes, I do not believe we can continue to disclose in this manner without having a tolerance violation when the third party fees are less at closing than initially disclosed.

What we would like clarification on is, under TILA/RESPA, are we allowed to show no credit at all on the loan estimate for the estimated third party fees and then show POC by Lender for each fee on the closing disclosure?

"multiple external and regulatory exams" are not regulatory citations. You have to have a change of circumstance to change anything in Block 1 or 2 on a GFE. Just because you don't lock the rate does not mean you get a free pass and can make changes to Block 2. I just think you have been extremely lucky for the last five years.

If you are going to give a lender credit, showing no lender credit on the LE is not going to meet the "reasonable" standard. If you are giving credit for specific items on a no cost, that total credit must be disclosed and be sufficient to cover the cost that you are telling the borrower that they will not have to pay. If those costs go down, you will remain locked into those disclosed lender credits. If they go up, then you either get to change the lender credit via a change of circumstance or you may have a tolerance violation that you are going to have to cure.

"No cost" loans are not no cost to the consumer. The bank makes their money one why or the other, usually through higher interest rates. The CFPB talked all about this in the preamble to the final regulations.

On the no closing cost lenders, am I correct in understanding that under TRID we will have the option to simply increase the lender credit if costs on a "no closing cost" loan increases? I understand that we would not be permitted to decrease lender credits, but increases to lender credits are permissible, correct?

Yes, you can; in fact, you have to.

But it's not quite that simple. Remember that the determination of whether closing costs increases are within tolerance levels takes place off the Closing Disclosure under TRID rules. For each closing cost, you determine whether it's subject to the 0%, 10% aggregate, or unlimited increase restrictions. And when you have determined how much of the increases are in excess of the tolerances, you have to carry that excess amount in to the description next to the Total Closing Costs entries.

So suppose that you have closing costs from the LE at $0 because you estimated a general credit would be given for the total of closing costs you listed on the LE. And suppose that when you complete your analysis of the differences between individual and group actual costs and those listed on the LE you determine that increases have exceeded the tolerance limits by $159.99. You can't just increase the lender credit and ignore the excess increases. You have to disclose the excess increases in the Calculating Cash to Close table's explanation of your "YES" response to "Did this change?" You'll say

• See Total Loans Costs (D) and Total Other Costs (I)
• Increase exceeds legal limits by $159.99. See Lender Credits on page 2 for credit of excess amount.

You will already have increased the lender credits in Section J by $159.99 and included the "(includes $159.99 for increase in Closing Costs above legal limit)" explanation. That reduced the total for Section J by $159.99, and the reduced total was carried into the Calculating Cash to Close table in the Final column.

lovehmda...it sounds like we have the same product. Currently we are able to reduce the amount of credit (if the actual invoices come in for less than anticipated on the GFE) because we don't offer rate locks.

On page 1 of the Loan Estimate, it states under the Rate Lock "Before closing, your interest rate, points, and lender credits can change unless you lock the interest rate". In order to lock the interest rate, you have to have a written agreement between the creditor & the consumer. We don't have an agreement, so we would always check No.

So why can't we reduce the lender credit?

Because the lender credit you are providing has nothing to do with the interest rate lock as it is not dependent on the lock. It doesn't now and never has - so I still do not understand how you were just willy-nilly changing your lender credit disclosed on the GFE.

A lender credit shown on a LE is a zero tolerance category, unless a change of circumstance occurs (same as it has always been). In the case of lender credits that were dependent on a rate lock, the change would have been reflected when the consumer locked the rate.

Must I disclose the Lender Credit on the LE... can I ignore it? (Just asking)

If you don't put the Lender Credit on the LE your LE won't compare favorably with the LE from a lender that does include a Lender Credit -- and if you believe that consumers actually shop mortgage terms, that might bother you.

If you are doing "no-cost" loans, I'm sure you have communicated that to the loan applicant. How does leaving off the lender credit meet the good faith standard. A disclosure is only in good faith if it is consistent with the best information reasonably available to the creditor at the time the disclosure
is provided. Are you planning to claim you had no intention of providing a "no cost" loan from the get go???

As my current understanding is... yes, we have no plans to disclose the lender credit on the Loan Estimate. We currently send a "clarity" statement to the member describing the numbers in more simplistic terms than the GFE does today. I agree with you - and I'm not sure the auditors will let it fly