We are ready to prepare a CD for a no-closing cost loan. The LE had a lender credit on it to cover all fees. Somewhere along the line an appraisal was ordered, rather than the evaluation that we quoted on the LE. Now we have an extra $300 to add to our lender credit (no change of circumstance and revised LE were provided at the time). to cover the extra charges. Do we also need to pay an additional $300 to the member because of the tolerance? I can't think!!

Thanks!!

No. Your costs will be $300 more and your lender credit will be $300 more because of the cure.

Thanks! What if this wasn't a no-closing costs loan?? Would we then need to pay the member $300 in addition to covering the extra fee??

No. I would just show the appraisal fee on the CD as $xxx (LE amount) as paid by the borrower and $300 as paid by the bank.

We also do no closing costs loans. We are not disclosing the fees we pay on the LE and are, therefore, not disclosing any type of lender credit. On the CD, all of the fees are being disclosed in the "Paid by Others" column. Per discussion with loan ops, the reason we are handling in this fashion is that the trainer from Professional Bank Services said we should not disclose the fees upfront since we are paying them. However, the above makes it sound like we should be showing these costs on the LE with a lender credit to offset. Would anyone be willing to offer any guidance on this? Thanks!

We offer specific lender credits. If we over-estimate one of the fees I know we cannot lower the credit to match the actual cost. My question is how should we disclose the credit for the difference? Do we show the amount that we over-estimated as a general credit to the borrower on the CD?

Let's assume that the only cost you overestimated was the appraisal, which you estimated at $500 but the final cost is $350. All the other cost estimates were "spot on," and you had disclosed a lender credit of $995 on the LE. You will still have to provide $995 in credits, and you can do that by putting costs for up to $995 in the Paid by Others column on page, tagged with an "(L)" to show they are lender-paid. But assume that the total actual costs are $995 - $150, or $845. You have $845 in costs listing as paid by lender, and that accounts for $845 of the LE-disclosed $995. You make the general lender credit on the CloD $150, and your total lender credits (the $845 from specific credits plus the $150 in general credits) is $995.

I would like to revive this one as it is very good and details out the specifics on when a cost disclosed is lower for a No Cost Loan. Can someone tell me what about when a cost is higher. For instance....
- No Cost Loan - all closing costs paid by lender
- The LE reflects all costs that total $1000
- The LE also reflects a Lender Credit of $1000 in Section J on pg 2
- The appraisal disclosed on LE was $200 and actual ended up being $300

The Bank will still cover the cost but how do you reflect the $100 credit? We keep getting errors and I think we have a set up error to fix.
- Disclose costs in the Paid by Others column on pg 2, tagged with an (L).
Do you keep the appraisal cost listed here as $200(L) and put the additional $100 credit in section J under Lender Credits?
If I put the total $300(L) on the CD it states I still need to provide a $100 cure?

Any comments are appreciated.

You would just raise the general lender credit by $100.

Would it make a difference that the appraisal fee is in the "Cannot shop for" category and would therefore would be a zero tolerance item?

Good Afternoon,

I would like to re-open this discussion, please. We are doing no-cost loans and we do not let our customers shop for services. We listed fees on the LE that are normally associated with our loans. However, we should not have listed two fees due to it being a second lien. With that being said, we do not want to show them on the CD as they are actually not needed. Do we now have to give the customer "cash back" to cure this? We are showing them as lender credits, but they are showing up in the Cash to Close table to give back to the customer. Please advise. Thank you!

If you disclose fees on the loan estimate and also disclose a lender credit on the LE to reflect the "no cost" aspect of the transaction, you can't lower the lender credit just because your LE included those extra fees. When you make a mistake like that, you own it.

Pay the money to the borrower and chalk it up as a lesson learned.

Thank you, John.

One more question. Would this be the same as estimating an appraisal fee at say $400 on the LE and we give a lender credit as still being a no-cost loan and it came back as $350, we would have to pay the customer for that mistake? We do quote fees based on fee schedules from our service providers, but sometimes you have a one-off that comes in a different amount for whatever reason they say.

That specific situation is actually cited in the official interpretation, .19(e)(3)-5:

...However, if the creditor discloses a $750 estimate for “lender credits” identified in § 1026.37(g)(6)(ii) to cover the cost of a $750 appraisal fee, and the appraisal fee subsequently increases by $150, and the creditor increases the amount of the lender credit by $150 to pay for the increase, the credit is not being revised in a way that violates the requirements of § 1026.19(e)(3)(i) because, although the credit increased from the amount disclosed, the amount paid by the consumer did not. However, if the creditor discloses a $750 estimate for “lender credits” to cover the cost of a $750 appraisal fee, but subsequently reduces the credit by $50 because the appraisal fee decreased by $50, then the requirements of § 1026.19(e)(3)(i) have been violated because, although the amount of the appraisal fee decreased, the amount of the lender credit decreased. See also § 1026.19(e)(3)(iv)(D) and comment 19(e)(3)(iv)(D)-1 for a discussion of lender credits in the context of interest rate dependent charges.

The regulation considers a decrease in lender credit as an increased charge to the consumer in determining good faith.

Thank you, burke116. I looked up this information and read a little further. It still does not make sense to me that when you have a no-cost loan for a customer that we should have to give any money to them when we, the bank, are paying all fees associated with the loan. It really looks to be they didn't consider that situation in there assessment and creation of this rule.

Which is why I've heard of banks that don't show the credit on the LE but give the borrower a cover letter or coupon that states they will pay for the appraisal, cbr, etc. at time of closing. I can remember discussions on this board about this very situation too.

I know it happens, but it sure violates the requirement of the LE to reflect the projected legal obligation and have it be in good faith.

but it sure violates the requirement of the LE to reflect the projected legal obligation and have it be in good faith

We only disclose the costs the borrower will be legally obligated to pay such as pre-paid interest, taxes, insurance, escrow deposits...all other charges that we will pay for are not disclosed on the LE.

That does not quite follow the guidance in the original TRID preamble.

So you don't like either my or Dan's optoin, Randy? Sounds like the only other thing to do, which is understating the credit, isn't in good faith either. Have you come across any other ideas?

I didn't say I didn't like them. All am I is saying is that the approach if challenged may be not terribly easy to defend based on actual regulatory guidance. Lots of lenders choose to do it those two ways. I could probably make a stronger argument for Dan's approach.

I had to go look up the preamble....it's been a while since I've read it and Randy is correct.

The premise is if the consumer sees a 5% rate with $X in costs and then a 5.5% rate with no costs they may not have the understanding the costs are built into the additional .5% and may not be savvy enough to compare the total cost of the loans.

I tried in my comment letter to get the CFPB to clarify this issue.

Listing the fees without a credit when you are telling the customer that you will give them a credit - well that is just not in good faith.

The only thing in the original preamble was about no-cost loans which said you have to disclose with credits and the question is - how far does that go - to any specific lender credits?

They really muddied the waters with the seller credit issue in TRID 2.0. If the seller is paying all or some of a borrower's fee for a service, then the lender can either disclosure the lesser amount, not disclose at all if the seller is paying it all or disclose the fee and the associated seller credit.

I had really hoped that they would just clarify that a lender paid fee could be handled in a similar manner as a seller paid fee.

We no longer have "no cost" loans because of this. Instead, we may have a campaign that has a general lender credit toward costs that minimizes what the borrower will need to bring to closing.