It has been noted in most every training I have attended, that on the Closing Disclosure, the vendor who provided the service is to be named on the Closing Disclosure and we cannot list the fee like we used to on the HUD which is "bank FBO Abel Appraisal Services." I have a settlement agent asking why we can't just list it as an FBO fee anymore. We are telling the settlement agent to fund certain fees to us for reimbursement. Is anyone handling this a different way???

I have read and re-read 1026.38(f)(2) and (3) which state:
1026.38(f)(2) Services borrower did not shop for. Under the subheading “Services Borrower Did Not Shop For” and in the applicable columns as described in paragraph (f) of this section, an itemization of the services and corresponding costs for each of the settlement services required by the creditor for which the consumer did not shop in accordance with § 1026.19(e)(1)(vi)(A) and that are provided by persons other than the creditor or mortgage broker, the name of the person ultimately receiving the payment for each such amount, and the total of all such itemized amounts that are designated borrower-paid at or before closing. Items that were disclosed pursuant to § 1026.37(f)(3) must be disclosed under this paragraph (f)(2) if the consumer was provided a written list of settlement service providers under § 1026.19(e)(1)(vi)(C) and the consumer selected a settlement service provider contained on that written list.

1026.38(f)(3) Services borrower did shop for. Under the subheading “Services Borrower Did Shop For” and in the applicable column as described in paragraph (f) of this section, an itemization of the services and corresponding costs for each of the settlement services required by the creditor for which the consumer shopped in accordance with § 1026.19(e)(1)(vi)(A) and that are provided by persons other than the creditor or mortgage broker, the name of the person ultimately receiving the payment for each such amount, and the total of all such itemized costs that are designated borrower-paid at or before closing. Items that were disclosed pursuant to § 1026.37(f)(3) must be disclosed under this paragraph (f)(3) if the consumer was provided a written list of settlement service providers under § 1026.19(e)(1)(vi)(C) and the consumer did not select a settlement service provider contained on that written list.

The closing disclosure has to indicate who ends up with the money, whether the settlement transaction pays it to them directly, they've been paid already by the lender and the settlement transaction reimburses the lender or some permutation of either of those routes. The former practice of disclosing "FBO" payments won't be used any longer.

So would it be permissible to put the vendor who performed the service and follow it by saying - reimburse AB???

I.e. Abel Appraisals - reimburse AB

Why would you want to complicate matters by doing that? If the settlement agent is pushing for it, push back. I, for one, am delighted to get rid of that unnecessary "FBO" rigamarole that the settlement agents pushed on us with claims that it was necessary. Since we prepare our own CDs, we're not about to get that started again. The ultimate recipient of the settlement charge is the only information required.

You don't use FBO and you don't report that the payment is reimbursing the lender as middleman. You are simply reporting who ultimately received or receives the fee. This is no longer a true settlement statement in the sense that the HUD-1 was supposed to be. It's a disclosure. Sure, it retains much of the information supplied on the old HUD-1, but a lot of the old practices that grew up around completion of the HUD-1 need to be forgotten.

Ha......I said what I said above, and then lo and behold, a settlement agent sends a check to us for the flood determination, but it's made payable directly to the vendor, because we did not indicate "bank fbo flood company" on the CD. Well, of course, there is nothing we can do with that check, and have probably already paid the vendor for that particular determination, last month anyway.

So the settlement agent, like settlement agents have done for years, starts blabbering about the mysterious "TDI rules" requiring the agent to make the check payable exactly as per the closing disclosure.

Any suggestions about how to handle this?

Incidentally, "TDI" might be a Texas something or other........not sure.

Can that be handled via the closing instructions letter?

TDI is Texas Department of Insurance and does come into loan closing due to the title insurance, insured closings, etc.

Thanks, Kathleen. I wonder.....is anyone else, Texas or not Texas, having this problem?

OK... I have a followup question....

It is OK to list the bank as the "ultimate" person being paid even though the bank did not perform the service? I reread your post and it seems you are saying that it would be either the vendor if they are being paid at the from the disbursement of closing funds OR the bank if we need to be reimbursed...is that correct?

We have our doc prep stating they believe the fee should be moved to "block A" because it is showing the bank being paid but we did not perform the service .... we are just being reimbursed....

I have been directing our folks to list the actual provider and then inform the title agent to send the funds to us for reimbursement. After re-reading your post it seems I misunderstand what the regulation is stating.

Are others inserting the bank name if the fee has already been paid by the bank and leaving it in the appropriate block?

On the CD, the payment must be stated to the ultimate recipient which, if the bank did not perform the service, would NOT be the bank. For example, if the bank pays for the flood determination (and then pays the vendor through a monthly statement), the CD would show the flood service provider's name as payee.....though obviously the check would have to be made payable to the bank so that the bank can enter on general ledger. We will be using Closing Instructions as Kathleen suggested, to instruct the title company to make the check payable to the bank rather than to the vendor. But bottom line, CD must disclose the vendor name.....no "FBO" or anything akin to it.

The disclosure shows who got paid or will be paid for providing the service. Swiggles has it right.

In the prefatory text (section by section analysis) that accompanied the rule in the Federal Register, much is made about the importance of including the name of the "ultimate recipient" of the fee on the Closing Disclosure -- to the point that the phrase appears 13 times between the regulatory text itself and the prefatory text. There is also a statement that the form and instructions are designed to enhance the consumer's understanding of the transaction, not to make things easier for the settlement service provider. This followed mention of a comment on the regulatory proposal that the entries on the settlement statement (the HUD-1) were used by the industry for the issuance of checks from settlement.

The clear statement being made by the Bureau is that the settlement service providers need to get over this thinking that the forms are for their convenience.

By the way, there is also a reference in that prefatory text discussion to the instructions in Appendix A to Reg X, which also says that the name of the ultimate recipient of the fee is supposed to be disclosed. There is nothing in Reg X that suggests the use of "FBO" statements in the HUD-1. And I can't see that the practice was ever approved by HUD when it was in charge. It looks like it is a practice that was adopted by the industry without any regulatory blessing.

From the Commentary to .19(e)

3. Fees “paid to” a person. For purposes of § 1026.19(e), a fee is not considered “paid to” a person if the person does not retain the fee. For example, if a consumer pays the creditor transfer taxes and recording fees at the real estate closing and the creditor subsequently uses those funds to pay the county that imposed these charges, then the transfer taxes and recording fees are not “paid to” the creditor for purposes of § 1026.19(e). Similarly, if a consumer pays the creditor an appraisal fee in advance of the real estate closing and the creditor subsequently uses those funds to pay another party for an appraisal, then the appraisal fee is not “paid to” the creditor for the purposes of § 1026.19(e). A fee is also not considered “paid to” a person, for purposes of § 1026.19(e), if the person retains the fee as reimbursement for an amount it has already paid to another party. If a creditor pays for an appraisal in advance of the real estate closing and the consumer pays the creditor an appraisal fee at the real estate closing, then the fee is not “paid to” the creditor for the purposes of § 1026.19(e), even though the creditor retains the fee, because the payment is a reimbursement for an amount already paid.

Thanks, Dan! I knew I had read that somewhere and I was drawing a blank. I think between us we have made the case that FBO shouldn't be used.

Bringing this back to life for a variation issue.
How do you handle showing the payee for a fee this is being averaged.
Tax service fee amounts vary by investor which is not always known at the time of closing.
In opting to average the fee, who do we show it being paid to?
Thanks for any assistance provided.

Reading this the following comes to mind.

I've never averaged a fee that wasn't to ONE vendor, but varied by borrower [think credit bureau]

I don't see how that can possibly work in reverse. It's not like that will be what you remit...won't you have to remit the specific fee for that vendor?

If you don't have the payee at the time of closing and this is for some future event, then I would say you would have to place this in Section A as payable to the creditor. You can't put fees in Section B, as you don't have a ultimate recipient and there are no provisions to disclose a recipient of a fee as TBD. If you do have the payee, then you would just list the average charge and the payee in Section B.

Thanks, Randy! I was trying to justify that angle. So we'll go with the average charge in Section A with zero tolerance.

If a fee is paid to a title company for a fee related to title insurance or services (such as a courier fee paid to UPS or a wire fee), should the bank disclose the title company as the ultimate recipient or the party that is paid by the title company such as UPS? We are sometimes made aware of this pass through of fees, but sometimes we are not. Can we consistently disclose that the fee is paid to the title company even if we have knowledge that there will be another ultimate recipient. How does this affect the tolerance calculations since the customer cannot shop for the other parties that are ultimate recipients of the funds - again, such as UPS?

Go with what you've got. If the title company identifies the courier service or the Starbucks runner who gets paid by the borrower for running up the street to get Java for the closing (tongue in cheek, folks) you name it or him./her on the CloD. If the title company simply says "courier fee" you show the title company as the recipient.

One follow up question. As I agree with your interpretation. Chase has a slightly different interpretation according to their FAQs. Here is an excerpt from their FAQs.

QD22: Who should be listed as payee on the Closing Disclosures at consummation if the payee is not known?
Lenders must complete the CD based on the best information reasonably available. If the lender will not know the name of the ultimate payee (i.e. a tax service fee that is chosen by the servicer), then an acceptable disclosure could be: “To be determined (TBD) by Servicer” or “Servicer will determine”. It is not acceptable however, to identify the lender or Chase as the payee for these third party services.


Would it ever be acceptable to list a fee as "Servicer will determine" or "To be determined by Servicer" for a tax service fee disclosed in Box B? Or would you consider this to be a case for it should be disclosed in Box A paid to the creditor when the payee is unknown at the time of closing? Chase believes it is never acceptable to list the lender/creditor as the payee for these third party services. Your input is appreciated. Thank you.

Only if you are selling to Chase as there is absolutely no regulatory support for their statement.

Slightly different scenario than has been discussed above. How do you disclose when a broker paid for the appraisal and the creditor needs to reimburse the broker? Is this just something handled outside of the CD process? It would not seem to be permitted to out this in the Broker Compensation under Section A, and under the show the ultimate recipient standard for Section B, you would list the appraisal company. Or, would you list the Broker as the recipient in Section B because they ordered the appraisal and at closing they are the entity actually being paid by the lender?

Section B with the appraiser listed as the recipient:

19(e)(3)(i) General rule.
3. Fees “paid to” a person. For purposes of § 1026.19(e), a fee is not considered “paid to” a person if the person does not retain the fee. For example, if a consumer pays the creditor transfer taxes and recording fees at the real estate closing and the creditor subsequently uses those funds to pay the county that imposed these charges, then the transfer taxes and recording fees are not “paid to” the creditor for purposes of § 1026.19(e). Similarly, if a consumer pays the creditor an appraisal fee in advance of the real estate closing and the creditor subsequently uses those funds to pay another party for an appraisal, then the appraisal fee is not “paid to” the creditor for the purposes of § 1026.19(e). A fee is also not considered “paid to” a person, for purposes of § 1026.19(e), if the person retains the fee as reimbursement for an amount it has already paid to another party. If a creditor pays for an appraisal in advance of the real estate closing and the consumer pays the creditor an appraisal fee at the real estate closing, then the fee is not “paid to” the creditor for the purposes of § 1026.19(e), even though the creditor retains the fee, because the payment is a reimbursement for an amount already paid.