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#2037904 - 09/10/15 06:05 PM Show Lender Credit only in Closing Disclosure?
Tarhe Offline
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A bank has said that on their “no cost” home equity loan, they will disclose all fees on the LE without showing a lender credit (but will tell the borrower that the bank will absorb the fees at closing). At closing, the CD will reflect a Lender Credit for all fees. Their reasoning is that if a fee goes down, they will not end up refunding money to the borrower because the lender credit was too high. The borrower does not end up paying anything, and the bank does not have to refund due to a change in fees. This bank said their attorney blessed doing it this way because of information he read in the preamble. Has anyone heard of this?

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TRID - TILA/RESPA Integrated Disclosures Rule
#2037906 - 09/10/15 06:08 PM Re: Show Lender Credit only in Closing Disclosure? Tarhe
raitchjay Online
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No, it doesn't sound compliant to me. The rule talks a lot about specific and non-specific lender credits and how to disclose them on the LE; why would they bother if an option was to just omit them from the LE and wait to see what was needed on the CloD? That's my 2 cents for whatever it's worth; i don't really have time at the moment to find you any specific citations...maybe someone else will chime in.
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#2037907 - 09/10/15 06:15 PM Re: Show Lender Credit only in Closing Disclosure? Tarhe
rlcarey Online
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19(e)(3) Good faith determination for estimates of closing costs.

19(e)(3)(i) General rule.

5. Lender credits. The disclosure of “lender credits,” as identified in § 1026.37(g)(6)(ii), is required by § 1026.19(e)(1)(i).

Pretty much says it all I think.
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#2037930 - 09/10/15 07:36 PM Re: Show Lender Credit only in Closing Disclosure? Tarhe
Jerod Moyer Offline
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Will the consumer be required or legally obligated to pay any of the charges? Will they be required or legally obligated to pay them and then you'll give them a lender credit based on some sort of game played in relation to the choice of an interest rate? I only ask because several others and myself have gone to the CFPB with questions similar to yours and have all received the same responses. Each time the questions I've posed are what the CFPB asks. The CFPB response we've all been generally getting goes something like this:

Forget about adjusted origination charges as disclosed today under RESPA (block 1, 2 & A). People are confusing what they know and do under RESPA today with the TRID rules, especially with the term "no cost" and the practice of disclosing lender credits.

A “no cost” loan is not defined within the Integrated Disclosure rule. There are references in the section-by-section analysis on only two pages. The context of a “no cost” loan with respect to the section-by-section analysis equates to a required service that must be paid by the borrower but is to be financed as part of the loan proceeds rather than paid in cash at closing [12/31/13 F.R. page #79825].

Sections 1026.37(f)(2) and (f)(3) of the Integrated Disclosures rule require an itemization of the cost of each settlement service the consumer “will pay” in connection with the loan, either in cash or by financing the cost as part of the loan proceeds.

In other words, if the consumer will not have to pay for the settlement service, it’s not required to be disclosed. In this case it’s treated as an overhead expense. For example, a lender that does not charge for credit reports or appraisals would not be required to disclose these services. Caution, if a required service is not disclosed it cannot be added back at a later date.

If the consumer must pay the cost for a settlement service but will be provided a lender credit to offset some or all of the cost, the service must be itemized as well as the lender credit. For example, if a lender offers an interest rate that provides a lender credit to offset some or all of the charges required to be paid by the borrower, the lender credit and the cost of the services must be disclosed.
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#2037938 - 09/10/15 07:55 PM Re: Show Lender Credit only in Closing Disclosure? Tarhe
Jerod Moyer Offline
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I need to clarify one of my comments, "no cost" shows up on couple of more pages but still isn't explicitly defined. My Adobe word search failed me. Anyway... one of the references is in the commentary to 37(g)(6)(ii) #2 but according to the CFPB that doesn't trump 37(f)(2) and (3). Sorry for the omission/understatement of the "no cost" # of appearance. It doesn't change the overall response from the CFPB.
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#2037951 - 09/10/15 08:22 PM Re: Show Lender Credit only in Closing Disclosure? Tarhe
John Burnett Offline
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It's good that individual stakeholders are able to obtain unofficial responses like the one that Jerod describes. My problem with those opinions, however, is that they aren't official, and there's nothing to say that the FDIC, FRB, OCC or NCUA (or Bureau, for that matter) examiner who walks in an institution's door two years from now is going to acknowledge or even be aware of those Bureau responses. And some of the questions are even more weighty than the one discussed in this thread.
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#2037957 - 09/10/15 08:26 PM Re: Show Lender Credit only in Closing Disclosure? Tarhe
RR Joker Offline
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I'm still hung up on this entire discussion due to the 'specific credits'. Why would that exist if the lender is knowlingly paying for specific items. It makes no sense to me that they would be contradicting that entire discussion/section by stating the above.
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#2037966 - 09/10/15 08:49 PM Re: Show Lender Credit only in Closing Disclosure? RR Joker
ComplianceRegs Offline
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I would second the statement RR has made. This goes against everything we have previously discussed and the purpose of a "specific credit."

Jerod, can you help us with how you came to this determination?
Quote:
In other words, if the consumer will not have to pay for the settlement service, it’s not required to be disclosed. In this case it’s treated as an overhead expense. For example, a lender that does not charge for credit reports or appraisals would not be required to disclose these services. Caution, if a required service is not disclosed it cannot be added back at a later date.

In the example of a credit report fee that we always waive I am operating under the assumption that we will always have to disclose this even if we never charge - just as we are required to do today even though it serves no purpose.

Here is how I believe this would be shown if we always waive the credit report fee.

Loan Estimate
*Credit Report Fee in - B. Services You Cannot Shop For
*We then show an offsetting lender credit as a negative in - J. Total Closing Costs

Closing Disclosure
*Credit Report Fee in - B. Services You Cannot Shop For (Shown in the "Paid by Others" column with a (L) for lender paid)
*We show the offsetting lender credit as a negative in - J. Total Closing Costs
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#2037976 - 09/10/15 09:14 PM Re: Show Lender Credit only in Closing Disclosure? Tarhe
rlcarey Online
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While the CFPB may have made that statement to some individuals that have asked and believe me, it would make things a lot easier and I would like to believe it, I am having a hard time reconciling it with the preamble to the regulation in which they specifically stated:

The disclosure of lender credits on the Loan Estimate points to a tension between having
an accurate and comprehensive disclosure of the costs associated with the extension of credit and
the fact that the Loan Estimate is disclosed early enough in the real estate settlement process that
the exact extent of the services required, and services that may not be required, is not completely
known by the creditor at the time the Loan Estimate is issued. To merely ignore services that are
most likely going to be obtained if a creditor intends to pay for the service would be an
unreliable standard for a consumer. Information regarding the services for which the consumer
will be likely to pay, either directly or through a higher interest rate, may be useful to consumers
when comparison shopping or understanding the nature of the mortgage loan transaction.
The
lack of specific credits on the Loan Estimate also facilitates comparison shopping, since a
consumer would have to analyze the extent that specific credits are being utilized by the creditor
to offset charges in the aggregate. Allowing specific credits on the Loan Estimate also could
lead creditors to include charges with an offsetting credit even when the creditor does not require
a specific service, increasing information overload and reducing the ability of consumers to
identify loans with terms that are better for their particular situation.Ignoring specific credits for
services the creditor intends to pay also can reduce the accuracy of the cash to close amount
disclosed under § 1026.37(h).
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#2038006 - 09/11/15 12:20 PM Re: Show Lender Credit only in Closing Disclosure? ComplianceRegs
Jerod Moyer Offline
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Sioux Falls, SD
Originally Posted By ComplianceRegs
I would second the statement RR has made. This goes against everything we have previously discussed and the purpose of a "specific credit."

Jerod, can you help us with how you came to this determination?
Quote:
In other words, if the consumer will not have to pay for the settlement service, it’s not required to be disclosed. In this case it’s treated as an overhead expense. For example, a lender that does not charge for credit reports or appraisals would not be required to disclose these services. Caution, if a required service is not disclosed it cannot be added back at a later date.

In the example of a credit report fee that we always waive I am operating under the assumption that we will always have to disclose this even if we never charge - just as we are required to do today even though it serves no purpose.

Here is how I believe this would be shown if we always waive the credit report fee.

Loan Estimate
*Credit Report Fee in - B. Services You Cannot Shop For
*We then show an offsetting lender credit as a negative in - J. Total Closing Costs

Closing Disclosure
*Credit Report Fee in - B. Services You Cannot Shop For (Shown in the "Paid by Others" column with a (L) for lender paid)
*We show the offsetting lender credit as a negative in - J. Total Closing Costs


Up until a month ago our take was the same as yours and others who have posted. You show the fee in "B" with a credit in "J". We then had several clients who had attended our various seminars and webinars call us and explain that they had received a different take from the CFPB. I also reached out to other consultants and a state Banking Association to see if they were hearing the same thing. They too had contacted the CFPB and received a similar response. Many of them spoke with the CFPB's David Friend. Having known him from several conversations re: the RESPA 2010 changes, I reached out. David called me back a few days later and provided me with the same interpretation that our clients and others had received, which I outlined in the previous post.

In my conversation with the CFPB and from what I heard from the others, there were two areas that were commonly stressed in each of the conversations:

1. The borrower's legal obligation to pay a charge.

2. Sections 1026.37(f)(2) and (f)(3) of the Integrated Disclosures rule requires only an itemization of the cost of each settlement service the consumer “will pay” in connection with the loan, either in cash or by financing the cost as part of the loan proceeds.
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#2038015 - 09/11/15 01:31 PM Re: Show Lender Credit only in Closing Disclosure? Tarhe
RR Joker Offline
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The regulation and preamble, et al just does not back this up. And we all know where one person's opinion at HUD got us before...unless it's written, it didn't happen and if it's written and not published, another PTB can come along and say 'that's not right'. I had that happened in 2010. Written by one and retracted by another. I'm afraid that unless and until the Bureau puts something in writing, we will continue to disclose and credit as we always have. Regardless of whether or not it makes sense.
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#2038638 - 09/15/15 08:12 PM Re: Show Lender Credit only in Closing Disclosure? Tarhe
Kathleen O. Blanchard Offline

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I just wanted to add that I too have reached out to the CFPB on this question and received a call back today. The response, from the two attorneys who called me back, was the same as what Jerod was told.

It comes down to (ignoring what the Preamble says) that the regulation says to disclose the terms of the legal obligation (and the customer is not legally obligated to pay those fees the lender is paying) and that you must, under 1026.37, disclose fees the customer "will pay", and the customer will not be paying. It is their feeling (CFPB attorneys) that the bank can absorb whatever costs it wishes to as a cost of doing business. There is no CFPB limit on what can be paid by the bank. Telephone calls, postage, credit reports, appraisals, etc. can all be absorbed.

1026.17(c): Basis of disclosures and use of estimates. (1) The disclosures shall reflect the terms of the legal obligation between the parties.

The customer is NOT legally obligated to pay the fees that the bank is absorbing as a cost of doing business.

1026.37(f)(2) Services you cannot shop for. Under the subheading “Services You Cannot Shop For,” an itemization of each amount, and a subtotal of all such amounts, the consumer will pay for settlement services for which the consumer cannot shop in accordance with § 1026.19(e)(1)(vi)(A) and that are provided by persons other than the creditor or mortgage broker.

1026.37(f)(3) Services you can shop for. Under the subheading “Services You Can Shop For,” an itemization of each amount and a subtotal of all such amounts the consumer will pay for settlement services for which the consumer can shop in accordance with § 1026.19(e)(1)(vi)(A) and that are provided by persons other than the creditor or mortgage broker.

In the last two points, the consumer will not be paying directly for the costs. It may or may not be buried in the interest rate.
Last edited by Kathleen B; 09/15/15 08:21 PM. Reason: added last comment
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#2038649 - 09/15/15 08:55 PM Re: Show Lender Credit only in Closing Disclosure? Tarhe
rlcarey Online
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Thanks KB. Not that I believe you over Jerod, but the evidence is apparently becoming overwhelming that the CFPB has taken this approach. I will inform my clients as such going forward and suggest they make their own contact with the CFPB and document it.
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#2038670 - 09/15/15 10:17 PM Re: Show Lender Credit only in Closing Disclosure? Tarhe
Kathleen O. Blanchard Offline

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It is a beneficial position...one I am sure many wish had been known for a few years!
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#2038672 - 09/15/15 10:26 PM Re: Show Lender Credit only in Closing Disclosure? Kathleen O. Blanchard
rlcarey Online
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Originally Posted By Kathleen B
It is a beneficial position...one I am sure many wish had been known for a few years!


Well, known by HUD anyway smile
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#2038674 - 09/15/15 10:36 PM Re: Show Lender Credit only in Closing Disclosure? Tarhe
Kathleen O. Blanchard Offline

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True. Oh for a time machine!
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#2038714 - 09/16/15 01:16 PM Re: Show Lender Credit only in Closing Disclosure? Tarhe
Kathleen O. Blanchard Offline

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A question was posed to me "what about a no cost program where if the customer pays off inside of 3 years and the agreement is that they must reimburse the bank for the fees paid". That actually came up in the discussion with the CFPB as an example of when a lender credit would be needed. Since not disclosing hinges on "legal obligation", in this case the customer does have a potential legal obligation and it seems the fees should be disclosed with the corresponding credit.
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#2038717 - 09/16/15 01:25 PM Re: Show Lender Credit only in Closing Disclosure? Tarhe
rlcarey Online
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Interesting. I would think yes. It would not be a prepayment penalty that must be disclosed as long as the prepayment happens in the first 36 months. So otherwise, how would the customer know what the penalty might be???

The commentary describes this as: “A waived bona fide third-party charge imposed by the creditor if the consumer pays all of a covered transaction’s principal before the date on which the principal is due sooner than 36 months after consummation.”

Notice they use both the terms "waived" and “charge imposed by the creditor”. Which means to me, it is likely part of the legal obligation under 1026.17 until that 36th payment happens that the CFPB was so quick to pull out of their back pocket.
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#2038726 - 09/16/15 01:33 PM Re: Show Lender Credit only in Closing Disclosure? Tarhe
Kathleen O. Blanchard Offline

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Definitely a legal obligation in these cases, which are pretty common based on my experience.
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#2038748 - 09/16/15 02:04 PM Re: Show Lender Credit only in Closing Disclosure? Tarhe
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I will be the first one to say I welcome this interpretation, but what then is the purpose of the "specific" lender credit? My only guess could be we use this interpretation when the creditor always eats the fee (like in my previous credit report example) and the specific lender credit would only be used when there is a charge that the customer is responsible for paying that the creditor elects to pay for on a one off basis?
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#2038750 - 09/16/15 02:11 PM Re: Show Lender Credit only in Closing Disclosure? Tarhe
raitchjay Online
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Even then though, the one-off "charge" that the bank is eating wouldn't be a "charge" that the consumer "will pay". I too am confused.
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#2038752 - 09/16/15 02:13 PM Re: Show Lender Credit only in Closing Disclosure? Tarhe
John Burnett Offline
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The discussion thus far has been about including those fees on the Loan Estimate (LE). The Closing Disclosure (CloD) has different requirements. On the CloD, you disclose all the costs, regardless of who pays them. If the creditor is picking up the credit report and appraisal costs, for example, each of those services will appear in Section B of the CloD, with the cost under the "Paid by Others" heading (optionally preceded by an L in parentheses to indicate the "other" is the lender). That's a specific lender credit.
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#2038759 - 09/16/15 02:24 PM Re: Show Lender Credit only in Closing Disclosure? Tarhe
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Ok, John, that's making some sense to me....so the specific lender credit, by the CFPB's interpretation, only has relevance on the CloD. Thanks.
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#2038762 - 09/16/15 02:27 PM Re: Show Lender Credit only in Closing Disclosure? Tarhe
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I see your point John and I guess I just don't understand why this interpretation would make a difference for most people. You already know these costs typically because they have to be calculated using the average charge (e.g., credit report). It is just as easy to go ahead and disclose it on the LE and have it carry forward to the CD. Where they really could have made a difference is if we wouldn't have to show this on either the LE or the CD- that is just wishful thinking.
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#2038766 - 09/16/15 02:34 PM Re: Show Lender Credit only in Closing Disclosure? Tarhe
John Burnett Offline
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Wishful thinking? Yes. Remember that the Closing Disclosure is even more inclusive of costs than the current HUD-1 and TILA disclosures. You are disclosing future costs in many cases, and even non-loan-related costs surrounding the transaction (a borrower-ordered inspection that isn't required for the loan, for example) and real estate agent fees.
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