We pay a vendor to track the hazard insurance policies on all of the mortgage loans we service, and they charge us a monthly fee based on the total number of loans they track for us. How should we determine the amount to disclose and charge the borrower for this? At closing we don't know the actual cost we'll incur on each loan because it will depend on how long we'll service it. Do we need to use the average charge approach under 1026.19(f)(3)(ii) and calculate the amount based on the average number of years before payoff for the loans we service? Our vendor is one of the larger ones in the industry, so I'm assuming this is an issue that other banks have dealt with.

Thanks,

Do you pass the fee on to the borrower every month?

No. Just a one time charge at settlement.

In my opinion that is a loan servicing fee, not related to the origination or closing of the loan. A lender may or may not include any particular loan in that servicing arrangement, could drop it at any time, and it would also cease upon payoff of the loan. It is impossible to predict at closing how much that fee will be over time.

IMO, if the lender wants to try and recover some of their loan servicing costs from the borrower at closing I would recommend that they simply charge the borrower an "administrative fee" or a fee with a similar name, and include it as an origination charge on the LE and CD, which would be subject to zero tolerance.

So, are you saying that if we didn't charge the borrower we wouldn't need to disclose this third party charge because it's not related to the origination of the loan?

Yes, In my opinion if the loan servicer contracts with a third party for post-closing tracking hazard insurance that fee is not a settlement service, so it would not belong on the LE or CD as a third party charge. The cost is simply part of the lender's loan servicing overhead cost, same as the cost for telephone service, lights, rent, and other third party services the lender has elected to use in their loan servicing operations. If the lender chooses to collect funds from the borrower at closing to cover some of their loan servicing overhead costs it would best be characterized as an administrative fee of some sort, payable to the lender and disclosed in section A of the LE and CD. Alternatively, the lender could increase the interest rate on the loan to provide them with additional income to cover their loan servicing expenses.

That makes sense to me. We use another vendor that monitors to make sure real estate taxes are paid over the life of loan, but they charge us a one-time fee per loan. We pass that cost on to the borrower and disclose the tax service fee on the LE and CD. Would the same hold true that we shouldn't disclose the fee charged by the vendor if we weren't passing it on to the borrower?

Thanks,

If the lender does not want the borrower to pay that third party fee at closing I do not believe the fee would need to appear on the LE or the CD, since it is not a service required as part of the loan transaction and the lender/servicer is paying the cost (the vendor is performing a post-closing loan servicing function for the lender/servicer.)

Thanks!

Haven't really seen many comments on this topic. I don't work in operations, so I am not sure exactly how the charges are assessed for such a service. It may depend on the vendor providing the service as far as having a set fee per loan vs. a monthly charge based on amount of loans serviced. But, I do see this as similar to Life of Loan monitoring for Flood Insurance, which is a charge that a creditor would generally include on the LE and CD.

I am not sure why you revived this 7-year old thread? Do you have a new question regarding this issue? The above responses are not correct based on actual TRID requirements, which were also clarified by the CFPB in their FAQs on absorbed fees.

I didn't see any more recent threads and the topic is basically the same, so I decided against opening a new one. I was looking into the accurate way to disclose this.

Whether lender paid or not, if it is service required to close the loan, it has to be on the CD.

But if it will be lender paid, it should not appear on the loan estimate, which is only required to show costs that the applicant/borrower will be expected to pay.