I cannot locate requirements on where to disclose a Principal Reduction on the Closing Disclosure.

Anyone....Anyone...?

I'm guessing this would be on an in-house refi with a principal balance reduction requirement?

I'm not really sure except we would require it prior to closing the new loan...but it may work as a credit/adjustment.

Any new thoughts on this? We frequently do principal reductions at closing for streamlines, to prevent too much cash to borrower. Will this have to be documented on a separate document or will the file have to go back to underwriting to lower loan amount, issue new CD and delay closing?

I would disclose it as a credit/adjustment as RR suggests. Unless this change affects the APR, the addition of the credit after the original CD was issued would appear on the CD provided at closing (or one day prior if requested).

On a refinance, you don't have the Adjustments and Other Credits section. You only have the Loan Costs section and the Payoffs and Other payments section. So, would it go in payoffs and other payments?

Bump. Dealing with the same question as Michelle. Vendor is advising to possibly use standard forms vs. alternate but that is not a long-term solution in my mind. Also suggestion on possibly using section K or H.

We include it in Payoffs and Other payments as "Borrower Payment for Principle Reduction."

We also include in the Payoffs & Other Payments section & include a description. We feel it fits in the "other payments" category.

However, now our Cash to Close on page 1 of the CD is blank. Page 3 shows $0 cash to/from borrower, but I'm not sure if our system is correct to leave page 1 blank... any suggestions?
Thanks!

No you cannot leave that part of page 1 blank. If the amount is actually $0, $0 should show up in that page 1 section,

Thanks John, this is what I figured. Now comes the battle with our LOS, who I'm sure will suggest manual completion of the CD...

When you consider the likelihood of an exact $0 closing, how often is this likely to happen? You can certainly complete this one using the LOS and add the missing $0 and checkmark manually. But the LOS vendor should address the glitch at some point.

We don't have it happen all too often. But some refinances end up having lower costs than anticipated, so we do sometimes use the principal reduction option to avoid cash-out to the borrower. Our investor allows this, & when we already have our closing documents drawn up by the attorneys & reviewed, the principal reduction option is a much quicker alternative than adjusting the loan amount.

Any suggestions on how to show this on a purchase where the closing costs are being financed and we do not want cash to the customer at closing? I know, but I didn't create this mess.

The CFPB issued guidance on this topic in a webinar from what I understand. Here's a summary:

http://docs.cmgfi.com/correspondent/TRID/TRID-FAQs-04-28-2016.pdf

Lower the loan amount?

Principal reductions were extensively addressed in the TRID amendments. It is no longer rocket science:

1026.38 - Commentary

4. Reductions in principal balance. A principal reduction that occurs immediately or very soon after closing must be disclosed in the summaries of transactions table on the standard Closing Disclosure pursuant to § 1026.38(j)(1)(v) or in the payoffs and payments table on the alternative Closing Disclosure pursuant to § 1026.38(t)(5)(vii)(B). The disclosure of a principal reduction under § 1026.38(j)(1)(v) or (t)(5)(vii)(B) includes the following elements: (1) The amount of the principal reduction; (2) the phrase “principal reduction” or a similar phrase; (3) for a principal reduction disclosure under § 1026.38(t)(5)(vii)(B) only, the name of the payee; (4) if applicable to the transaction, the phrase “Paid Outside of Closing” or “P.O.C.” and the name of the party making the payment; and (5) if the principal reduction is used to satisfy the requirements of § 1026.19(f)(2)(v), a statement that the principal reduction is being provided to offset charges that exceed the legal limits, using any language that meets the clear and conspicuous standard under § 1026.38(t)(1)(i). If a creditor is required to disclose the name of the party making the payment or that the principal reduction is being provided to offset charges that exceed the legal limits, and there is insufficient space under the § 1026.38(j)(1)(v) or (t)(5)(vii)(B) disclosure for these elements of the principal reduction disclosure, the creditor may omit these elements from the § 1026.38(j)(1)(v) or (t)(5)(vii)(B) disclosure. If the creditor omits these elements from the § 1026.38(j)(1)(v) or (t)(5)(vii)(B) disclosure, the creditor must provide a complete principal reduction disclosure under an appropriate heading on an additional page, in accordance with § 1026.38(j) and (t)(5)(ix), as applicable, with a reference to the abbreviated principal reduction disclosure under § 1026.38(j)(1)(v) or (t)(5)(vii)(B).

i. Principal reduction not paid with closing funds. A principal reduction is disclosed in the summaries of transactions table under § 1026.38(j)(1)(v) and marked with the phrase “Paid Outside of Closing” or the abbreviation “P.O.C.” pursuant to § 1026.38(j)(4)(i), or in the payoffs and payments table under § 1026.38(t)(5)(vii)(B) marked with the phrase “Paid Outside of Closing” or the abbreviation “P.O.C.,” if it is not paid from closing funds. For a principal reduction disclosed under § 1026.38(j)(1)(v) that is not paid from closing funds, the amount of the principal reduction is not included in computing the summaries of transactions totals under § 1026.38(j) or the cash to close disclosures under § 1026.38(i). For a principal reduction disclosed under § 1026.38(t)(5)(vii)(B) that is not paid from closing funds, the amount of the principal reduction is not included in computing the total payoffs and payments amount disclosed under § 1026.38(t)(5)(vii)(B) or the cash to close amount disclosed under § 1026.38(e)(5)(ii). For example, a creditor providing a $500 principal reduction to satisfy the refund requirements of § 1026.19(f)(2)(v) discloses the principal reduction under § 1026.38(j)(1)(v) by providing in Section K of the summaries of transactions table a statement such as “$500.00 Principal Reduction for exceeding legal limits P.O.C. Lender,” and not including the amount of the principal reduction in the summaries of transactions totals under § 1026.38(j) or the calculating cash to close disclosures under § 1026.38(i). Alternatively, if there is insufficient space under § 1026.38(j)(1)(v) for a creditor to disclose the name of the party making the payment or a statement that the principal reduction is being provided to offset charges that exceed the legal limits, a creditor may disclose a statement such as “$500.00 Principal Reduction P.O.C.” under § 1026.38(j)(1)(v) and a statement on an additional page such as “$500.00 Principal Reduction for exceeding legal limits P.O.C. Lender. See Section K on page 3.”

ii. Principal reduction paid with closing funds. A principal reduction is disclosed in the summaries of transactions table under § 1026.38(j)(1)(v) or in the payoffs and payments table under § 1026.38(t)(5)(vii)(B) without the phrase “Paid Outside of Closing” or the abbreviation “P.O.C.” if it is paid from closing funds. The amount of a principal reduction that is paid with closing funds is included in the applicable calculations required under § 1026.38. For example, in a refinance transaction using the alternative tables on the Closing Disclosure, a creditor discloses a $1,000 principal reduction to reduce the cash provided to the consumer by providing in the payoffs and payments table under § 1026.38(t)(5)(vii)(B) a statement such as “Principal Reduction to Consumer” under the column heading “TO” and “$1,000.00” under the column heading “AMOUNT,” and by including such amount in the total payoffs and payments amount under § 1026.38(t)(5)(vii)(B) and in the cash to close amount under § 1026.38(e)(5)(ii). In this example, the creditor must disclose the following elements under § 1026.38(t)(5)(vii)(B): The amount of the principal reduction, the phrase “principal reduction” or a similar phrase, and the name of the payee. The creditor should not include in the disclosure the phrase “Paid Outside of Closing” or “P.O.C.” and the name of the party making the payment, or a statement that the principal reduction is being provided to offset charges that exceed the legal limits, because those principal reduction disclosure elements are not applicable to the transaction in this particular example. The creditor may not use an addendum for the principal reduction disclosure in this example.

I am having a hard time understanding principal reductions. If a reduction is paid with closing funds, I understand it goes in Section K of the Summaries of Transactions table. In the Calculating Cash to Close table, is it shown as an "adjustment and other credit?

That should be where your LOS includes the Section K adjustments automatically. If there's nothing "automatic" about it in the system you're working with, include it in the "adjustments and other credits" amount as a positive amount.

Question - in reducing the amount of the principal, are folks also recasting the P&I payment?

I have not witnessed it - of course the PR that I have seen are not a substantial amount.

Thanks Randy - recasting was something that came up in conversation here and I was unsure as I had not considered it in terms of Principal Curtailment.

In terms of Principal reduction not paid with closing funds - I have not seen any sample CD's, but are people envisaging the required language in section K on one of lines 4 - 7 or just line 4?