Would really appreciate some assistance as I have been struggling with trying to figure out how comply....

Currently when a borrower is approved for an appraisal waiver for loans we are selling to Fannie Mae or Freddie Mac we are still collecting the initial fee for the appraisal from the borrower upfront, and when the loan is closed we are crediting the borrower the fee back – listed as a general “Lender Credit”. Freddie Mac is asking that we specifically identify/label the lender credit on the Closing Disclosure by stating it is for the appraisal refund. We can list general lender credits on the Closing Disclosure, but the system doesn’t allow us to specify what the credit is for.

According to the CFPB this refund isn't even considered a lender credit:
1. What is a lender credit for purposes of the TRID Rule?
The regulatory text and commentary for various TRID Rule provisions use the term “lender credit” or “lender credits.” See, for example, 12 CFR §§1026.19(e)(3)(iv)(D), 1026.37(a)(13)(ii), 1026.37(d)(1)(i)(D), 1026.37(g)(6)(ii), 1026.38(d)(1)(i)(D), 1026.38(e)(2)(iii)(A), 1026.38(f), 1026.38(h)(3), and 1026.38(t)(5)(ii).

For purposes of the TRID Rule, lender credits include: (1) payments, such as credits, rebates, and reimbursements, that a creditor provides to a consumer to offset closing costs the consumer will pay as part of the mortgage loan transaction; and (2) premiums in the form of cash that a creditor provides to a consumer in exchange for specific acts, such as for accepting a specific interest rate, or as an incentive, such as to attract consumers away from competing creditors. Comments 17(c)(1)-19, 19(e)(3)(i)-5, 37(g)(6)(ii)-1, and 38(h)(3)-1.

Amounts the consumer or seller pays are not lender credits for purposes of the TRID Rule. For example, amounts that a creditor collects from a consumer, holds for a period of time, and then applies to cover closing costs are not lender credits because, in such cases, the creditor is not providing anything to the consumer. Similarly, amounts that a creditor collects from a consumer, holds for a period of time, and then returns to the consumer later are not lender credits because, in substance, the funds are provided by the consumer rather than the creditor.

What the CFPB does not go into with any additional details is, how do we disclose returning the appraisal fee?

Has anyone had this situation in your shop?

These are refinances - correct? You can show it as a negative in the payoffs and payments table as " Appraisal fee refund by (lender name)" or if a purchase, then Section L under Adjustments. Of course the real answer is if Freddie is telling you this is to ask them how to do it.

Thanks rlcarey. I'll pass this on to the lending team. Appreciate your response!

It's been a while, Randy, since I've looked at this situation. Would it be acceptable to show the pre-paid appraisal fee in the "Before Closing" column on page 2 and the credit as a negative amount next to it in the "At Closing" column? Perhaps on separate lines in section A so that the negative amount could be labeled a refund to borrower?

Well, I think the hitch in that approach is that on a closing disclosure though is you need a payee name in Section B. With one not available it makes it problematic.

Excellent point, Randy. Thanks.

While it seems like a lifetime ago, the CFPB addressed collecting too much for a fee back in 2016 during one of their webinars. This is a little different and the fact there is no payee like Randy stated still becomes an issue, but here is what they said:

...if the consumer pays for a service before closing and the service ends up costing less than the amount collected by the creditor, does the creditor disclose those excess funds as a lender credit?
...No. The creditor would not disclose those excess funds as a lender credit. A lender credit is a payment, either specific or general, from the creditor to the consumer to pay for a fee, and it's disclosed as a negative charge to the consumer, as explained in Comment 19(e)(3)(i)-5. However, the question posed relates to excess amounts paid by the consumer for a service before closing.

...Let's assume that the consumer has received the Loan Estimate and has expressed an intention to proceed. The creditor then collects $500 from the consumer for a particular charge, let's say for an appraisal. However, the appraisal winds up only costing $450. Therefore, there is an excess of $50 that the creditor already collected from the consumer and for which there needs to be an allocation of funds to charges that the consumer has paid before consummation.

The question is how the creditor accounts for the excess $50 collected from the consumer before closing and which was not needed for the appraisal service for which it was collected.
The creditor has at least two options for how to reconcile those excess funds paid by the consumer before closing. First, the creditor may send the funds back to the consumer before consummation by check. In that event, the creditor would simply disclose $450 as paid by the consumer before closing for the cost of the appraisal. Second, there are many other costs associated with the residential real estate transaction to which the excess payment from the consumer may be applied. With the second approach, it becomes a question of how to disclose the excess funds on the Closing Disclosure under Section 1026.38(f) and (g). Both provisions state that the charges listed as loan costs and other costs are made in columns stating whether the charge was borrower paid at or before closing.

In our example, there are two possible ways to comply with this instruction. The excess $50 may be allocated to other services paid by the consumer before closing, especially to those charges of the creditor, since the $50 is already in the creditor's possession before closing.
Alternatively, the creditor may disclose the full amount collected before closing for the appraisal service and then disclose a negative amount of $50 being given back to the consumer at closing on the same line for that service. But for that specific charge, the creditor would disclose negative $50 as paid by the consumer at closing and $500 as paid by the consumer before closing.