On a purchase or refinance transaction, if we are paying off debt from credit (like installment/revolving accounts or IRS tax debt), should this be marked as APR fee on the CD? One of our new lenders states that at her previous employer they were required to mark them as APR if not mortgage related payoffs.

One of our new lenders - they must be very new? What does what the consumer is doing with the loan proceeds have to do with finance charges? Your going to have a lot of high cost mortgages like that.............

If it is a purchase, it will not be from loan proceeds - sometimes the seller is paying their debt or we have to have them bring funds to close to payoff debt to qualify.... thoughts?

Print this:

https://www.bankersonline.com/regulations/12-1026-004

Have whoever is trying to convince you point to the citation to support their claims.

Like RL stated, purchase or not, it has no bearing on being a finance charge. Paying off debt or tax liens is NOT a finance charge.

rlcarey, I printed your list and I must say it's the most detailed one I've found!
I have a couple of questions for you.

1. I see the "closing fee" is an APR item. If the FI requires the loan to close at the title co and the FI passes that fee on to the borrower then it's an APR item, correct? If that fee is passed on to the borrower but the seller pays it at time of closing, is it still and APR item?

2. I've recently seen a title charge on the CD named: Title - Electronic Document Delivery Fee. Your list reflects a Electronic Delivery fee which I assume is the same thing. For any reason, does it matter if the FI is charging it vs. the title co?

I think we might have some discrepancies between how we calculate this for our in house loans vs. those for secondary market. I was told for secondary market loans, the processor was unclicking the APR box (to exclude) if the seller paid the closing fee. Help!

BA13 - In addition to the wonderfully detailed list that RL provided, there are also 5-10 APR matrices that you can find online that lays many of the fees out and notes whether it is a finance charge or not. The following is a pretty good one -

https://impacwholesale.com/uploads/pages...3%2023%2016.pdf

Yes, a Title - Closing Fee is considered an APR item. There are some other threads where we have discussed what happens when a Seller pays for the particular closing costs. I believe the general take is if there is a specific statement in a PA or other document where the Seller specifies that he/she is paying the "Title - Closing Fee" (for this scenario), then because the seller paid for the cost, it would not be included in APR calculation. However, barring such a clear statement, the general consensus is that it would still need to show up as a cost to the borrower (Seller Credit offset would just be a "general" credit) and an APR item.

If the Electronic Delivery fee is related to the provision on title services, i.e. those required for the issuance of title insurance policies to the creditor in connection with the consummation of the transaction or for conducting the closing. These services may include, for example:
i. Examination and evaluation, based on relevant law and title insurance underwriting principles and guidelines, of the title evidence to determine the insurability of the title being examined and what items to include or exclude in any title commitment and policy to be issued;
ii. Preparation and issuance of the title commitment or other document that discloses the status of the title as it is proposed to be insured, identifies the conditions that must be met before the policy will be issued, and obligates the insurer to issue a policy of title insurance if such conditions are met;
iii. Resolution of underwriting issues and taking the steps needed to satisfy any conditions for the issuance of the policies;
iv. Preparation and issuance of the policy or policies of title insurance; and
v. Premiums for any title insurance coverage for the benefit of the creditor.,

then, the fee should include the phrase "Title -" before it. It would be an APR item and there would be a difference for QM and HC testing purposes if it was paid to the lender.

It shouldn't matter whether the loan is being sold in secondary or not, unless it is a VA loan because they are very specific in how to itemize seller credits due to restrictions on what fees the borrower can pay for. The analysis for whether a Seller-Paid cost is an APR item depends on what was discussed above. You have to determine if there is a specific agreement outlining that the seller will pay that specific fee.

Thanks

If the borrower is not paying the fee, it will never be finance charge.

Second, you really cannot get hung up the specific name that someone assigns to a specific fee. It all really comes down to what it is for and whether or not you can exclude the fee for the service under 1026.4. That is really the only true test. Any list is really only a general guideline.

It was my understanding that if the borrower is obligated under the terms of the loan agreement with the lender to pay a fee, and that fee is a finance charge under the regulation, it's a finance charge regardless of who pays it. If the lender waives the fee, and doesn't charge it, it can't be a finance charge. But if the seller pays the fee owed by the borrower, it's still a finance charge.

Or have I misread several discussions on this topic?

I'm still confused, I didn't think it mattered who paid the fee. If we pass the required closing fee on to our consumer but the seller pays it, doesn't that fall under the "any charge payable directly or indirectly by the consumer..." portion of the finance charge definition?

Do I have this right -
In our lending area it's typical for the buyer & seller to split the title company's closing fee and the contract will state just that. In this situation, our borrower's portion of that fee would be included in the APR calculation? If the contract states seller will pay ______ fee (specific) and if that fee is a finance charge then I would exclude it from the APR. If the contract states seller will pay $3,000 (general credit) of closing costs then all finance charges are included.

What John said. It would require a contract between lender and seller in order to void it as a PPFC.

John, I just saw your post and what you have written is what I thought I knew. I'm a bit confused now...

A specific lender or seller credit for a fee that would normally be a finance charge to the consumer would not be a finance charge. However, you cannot use general lender or seller credits to offset borrower finance charges - that was discussed in a recent thread.

Official Interpretation

Paragraph 4(c)(5)

2. Other seller-paid amounts. Mortgage insurance premiums and other finance charges are sometimes paid at or before consummation or settlement on the borrower's behalf by a noncreditor seller. The creditor should treat the payment made by the seller as seller's points and exclude it from the finance charge if, based on the seller's payment, the consumer is not legally bound to the creditor for the charge. A creditor who gives disclosures before the payment has been made should base them on the best information reasonably available.

The creditor should treat the payment made by the seller as seller's points


Wouldn't 'points' be limited to discount points paid by seller?

exclude it from the finance charge if, based on the seller's payment, the consumer is not legally bound to the creditor for the charge.

And isnt' the above why, unless it's contracted between lender and seller, it doesn't take it away from PPFC?

Sorry, I really don't know how much clearer to state it other than what the commentary to the regulation says. If the seller pays the settlement agent for a portion of the settlement fees that is normally charged to the borrower, the consumer is no longer legally bound to pay that fee to the credit. Insert settlement fee:

Settlement fees are sometimes paid at or before consummation or settlement on the borrower's behalf by a noncreditor seller. The creditor should treat the settlement fee payment made by the seller as seller's points and exclude it from the finance charge as based on the seller's payment, the consumer is no longer legally bound to the creditor for the charge.

If the seller pays the borrower's origination fee or application fee, I would exclude that as well or is the above ONLY for settlement fee situations/charge assessed by 3rd party?

Any specific seller credit attributable to a finance charge.

There are so many discussions on this and the above takes the opposite stance. Did something change? The following is one of the best, most comprehensive discussions I can recall.

https://www.bankersonline.com/forum/ubbthreads.php/ubb/showflat/Number/1888735

So - your LOS allows you to enter fees in the paid by seller column and still include the charge in prepaid finance charges?

Good point, Randy! I tried it and it took them out of the equation.

@RR - That thread is a bit old. There have been additional threads post-TRID. Basically, as I tried to convey above and what RL stated, if a specific seller credit is delineated towards a fee that is an APR item, then it will no longer be a part of the finance charge calculation. The kicker is really getting specific language in a contract related to seller credits, as they usually just say "Seller agrees to pay such-and-such amount towards borrower closing costs." As regards your Seller Discount Points question, the following link is a good article on the topic, though more specific to QM Points and Fees, but obviously relevant to finance charges as well:

http://mortgagelendinglaw.blogspot.com/2014/01/qualified-mortgages-are-seller-paid.html

Our LOS for secondary market loans will remove it from the APR if we specifically mark the box 'seller responsibility". If you don't do that, then it defaults to an APR item as required however that APR box can manually be unchecked which is a bit concerning. I believe I have a much better understanding so thank you all for your input!!

Well, for secondary market loans you need to be following the lead of your investor, regardless of what the regulation may or may not say.

Our LOS for secondary market loans will remove it from the APR if we specifically mark the box 'seller responsibility

Unless the purchase agreement specifically identifies what fees the seller credits are to be applied to you should not be arbitrarily making that decision, nor should the borrower.

When the following, or similar language is in the purchase agreement, "Seller agrees to pay such-and-such amount towards borrower closing costs." then that is a general closing credit applied to the bottom line and would not affect any APR charges.

Thank you for the guidance, I appreciate it!