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#2232523 - 03/06/20 03:24 PM Closing Disclosure - Adding a Point?
zums Offline
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Joined: Jan 2010
Posts: 65
Borrowers closing on a purchase transaction next Wednesday. They have requested to pay to break their rate lock with the sudden rapid decline in rates.

CD was issued previously, but have time to issue a new CD today (Friday) and have 3 day window prior to Wednesday closing.

Are we allowed to add a point to origination fees and issue a revised CD today to cover the rate-lock fee? There were no points on any LE or the initial CD.

Thanks!

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#2232530 - 03/06/20 03:46 PM Re: Closing Disclosure - Adding a Point? zums
rlcarey Offline
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rlcarey
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Galveston, TX
I am confused. They are paying to break the rate lock - that would be a separate fee on the CD. How is that related to adding an origination fee to the loan? An origination fee is not interest rate dependent.
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#2232539 - 03/06/20 04:12 PM Re: Closing Disclosure - Adding a Point? zums
zums Offline
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Joined: Jan 2010
Posts: 65
Sorry for the confusion, relatively new to this situation.

I guess I was thinking we add a point as an origination fee to the borrower to essentially buy down the rate (which is what they are doing) and on the back end that would cover our fee for breaking the lock and re-locking at the lower rate with out investor.

Are we allowed to just add a "rate-lock break fee" for example in the borrower paid column? If so, which section? Does it matter that it was not disclosed on the initial CD?

Just want to make sure 1) it's allowable to do this and 2) it is disclosed properly without any violations or cost to the bank.

Appreciate your input.

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#2232545 - 03/06/20 04:25 PM Re: Closing Disclosure - Adding a Point? zums
rlcarey Offline
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rlcarey
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Galveston, TX
If the borrower entered into a written rate lock agreement and I assume there a rate lock break fee included in the agreement, then the borrower exercising that right would be a valid changed circumstance allowing you to add the break fee to the CD. This would be Section A fee as it would be paid to the lender. Again, an origination fee is not interest rate dependent.
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#2232549 - 03/06/20 04:46 PM Re: Closing Disclosure - Adding a Point? zums
zums Offline
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Joined: Jan 2010
Posts: 65
Thank you Randy. I just looked and it does not appear our rate lock form references anything specific regarding breaking the lock and/or the fee associated with doing so.

Will create something for them to sign acknowledging their desire to break the lock, pay the fee, the addition of the fee to the CD and then add it in under Section A as a "rate lock break fee".

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#2232615 - 03/07/20 10:08 PM Re: Closing Disclosure - Adding a Point? zums
Truffle Royale Offline

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I'd just go with a new rate lock agreement that includes the fee to break and lock the lower rate.

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#2250620 - 03/16/21 01:26 PM Re: Closing Disclosure - Adding a Point? zums
Banker K, CRCM Offline
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Joined: Jan 2010
Posts: 293
Oklahoma
Just trying to confirm as this just happened with one our secondary market lenders...

They added "points" in section A. on the CloD to buy down the rate.
1. As long as the customer agreed to do this, then we can document this as a changed circumstance, right?
2. If it should not have gone in the points in section A, which line # and fee name should it have been added to?

Hope this made sense. Thanks.
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#2250624 - 03/16/21 01:44 PM Re: Closing Disclosure - Adding a Point? zums
rlcarey Offline
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rlcarey
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Galveston, TX
I assume this involved a rate lock? If they are actually buying down the interest rate (without the fee the loan was available at a higher rate), then it would be a bona fide discount points.
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#2250631 - 03/16/21 02:18 PM Re: Closing Disclosure - Adding a Point? zums
John Burnett Offline
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John Burnett
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Cape Cod
Either way, the increased fee or added discount point(s) would have to appear on a timely redisclosure (LE or CD) within three business days of the agreement to the pricing change or at closing, but no later than at closing.
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