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#2258813 - 08/26/21 08:42 PM Disclosing Financed Amounts
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Perhaps I am having a brain freeze on TRID, but something I was thinking about is bothering me and I can't think of the answer. How do you disclose fees that are rolled into the loan amount? So, for example, the borrower is charged a $500 Processing Fee, but it is financed by the lender as part of the loan amount. In the Page 2 disclosures, I don't see how any of the columns are accurate. It's not Borrower-Paid At Closing, it's not Seller-Paid, and it's not Lender Paid (based on how TRID treats that). I know it should show in the Closing Costs Financed amount, but this field consists of a calculation. Does something just happen "behind the scenes" where the creditor marks it will be financed and it just shows on Page 2 as Borrower-Paid and the Loan Amount and Cash to Close figures are adjusted accordingly?

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#2258817 - 08/26/21 08:56 PM Re: Disclosing Financed Amounts Compliance NABW
rlcarey Online
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Whether the $500 is paid by a check from the borrower or deducted from the loan proceeds, the fee is still borrower paid, so I guess I am confused. It would be a prepaid finance charge regardless of how it is paid as long it is paid at or prior to closing.
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#2258821 - 08/26/21 09:24 PM Re: Disclosing Financed Amounts Compliance NABW
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Understood. I am confused then on how it doesn't end up in the cash to close amount.

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#2258824 - 08/26/21 09:44 PM Re: Disclosing Financed Amounts Compliance NABW
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OK
On a non-seller transaction, it's pretty straightforward--the financed closing costs show up as a negative number under "total closing costs" and get subtracted out from the loan amount just like the payoffs and payments do.

On seller transactions, it can get a little convoluted with the downpayment amount....but basically, the borrower's true down payment amount is increased by the amount of fees financed. (I guess that really should say....the cash from borrower amount is equal to the true down payment amount plus the amount of financed fees.)

At least, i believe so. Not able to look at anything at the moment in our system.
Last edited by raitchjay; 08/26/21 09:47 PM.
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#2258825 - 08/26/21 09:49 PM Re: Disclosing Financed Amounts Compliance NABW
rlcarey Online
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If it is on Page 2, then it becomes a component of the closing costs. How can it not end up in the cash to close? If your loan amount is less than the closing costs, payoffs and other adjustments, then the borrower needs to bring a check to closing. If your loan amount is more than the closing costs, payoffs and other adjustments, then the borrower gets a check at closing.
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#2258826 - 08/26/21 09:49 PM Re: Disclosing Financed Amounts Compliance NABW
raitchjay Online
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I didn't state that correctly on the seller transactions, and without anything to look at.....i'm afraid i can't state it correctly.
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#2258836 - 08/27/21 01:28 PM Re: Disclosing Financed Amounts Compliance NABW
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Randy . . . I get the concepts. How does the CD end up getting filled out correctly. That's what I don't get.

Loan A
Loan Amount $200,000
Closing Costs $5,000

Loan B
Loan Amount $205,000
Closing Costs $5,000

How does the system know the $5,000 closing costs in Loan B is financed? What stops Loan B from just getting a bigger amount of loan funds and the borrower still has to bring $5,000 to closing? It's the Closing Costs Financed field. So, how do amounts end up in the Closing Costs Financed line? That's what I don't get.

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#2258840 - 08/27/21 02:09 PM Re: Disclosing Financed Amounts Compliance NABW
rlcarey Online
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You need to know the rest of the transaction, not just the loan amount and the closing cost. Basically, If the cash due from the borrower at closing if less that the closing costs, then some of all of the closing costs are going to be financed.

37(h)(1)(ii) Closing costs financed.
1. Calculation of amount. The amount of closing costs financed disclosed under § 1026.37(h)(1)(ii) is determined by subtracting the estimated total amount of payments to third parties not otherwise disclosed under § 1026.37(f) and (g) from the loan amount disclosed under § 1026.37(b)(1). The estimated total amount of payments to third parties includes the sale price disclosed under § 1026.37(a)(7)(i), if applicable, unless otherwise excluded under comment 37(h)(1)-2. Other examples of payments to third parties not otherwise disclosed under § 1026.37(f) and (g) include the amount of construction costs for transactions that involve improvements to be made on the property and payoffs of secured or unsecured debt. If the result of the calculation is zero or negative, the amount of $0 is disclosed under § 1026.37(h)(1)(ii). If the result of the calculation is a positive number, that amount is disclosed as a negative number under § 1026.37(h)(1)(ii), but only to the extent that the absolute value of the amount disclosed under § 1026.37(h)(1)(ii) does not exceed the total amount of closing costs disclosed under § 1026.37(g)(6).

2. Loan amount. The loan amount disclosed under § 1026.37(b)(1), a component of the closing costs financed calculation, is the total amount the consumer will borrow, as reflected by the face amount of the note.
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#2258892 - 08/27/21 08:54 PM Re: Disclosing Financed Amounts Compliance NABW
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Yes, I read that before I posted. I guess I just don't understand the calculation here. It's cool. Thank you for the effort. It seems like there should (has to) be something that lets the system know the fee is financed. I don't see how just doing the math gets the financed amount. See below:

Loan Amount $205,000
Closing Costs $5,000
Sale Price $180,000

Loan Amount minus Sale Price = $25,000, but it can't be larger than $5,000 since those are the closing costs. So, you would use -$5,000 in Closing Costs financed.

Loan Amount $200,000
Closing Costs $5,000
Sales Price $180,000

Loan Amount - Sale Price = $20,000, but it can't be larger than $5,000. So, you again use -$5,000 in Closing Costs financed.

It doesn't make sense that the number is the same, but in the loan with the $200,000 loan amount I noted in the previous post that the borrower was going to pay closing costs of $5,000 and not finance them.

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#2258947 - 08/30/21 05:57 PM Re: Disclosing Financed Amounts Compliance NABW
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If the borrower is paying the costs before closing, then it increases the Closing Costs Paid Before Closing, which in turn will increase the cash out to borrower.

If the borrower is paying the costs at closing by writing a check but the loan amount remains the same, the amount is not included in the Closing Costs Paid Before Closing, which decreases the cash out to the borrower. The theory is that if the borrower is getting a check from the escrow for $5000 but is also writing a check to escrow (or to the lender) for $5000 to cover closing costs, then those costs are effectively being financed. In your $200/$5/$180 example, the borrower is borrowing $200k in order to pay $185k in sales price and loan costs and walk away with an extra $15k in their account after the dust settles. Whether that $15k comes in the form of a $15k check at closing or in the form of a $20k check at closing offset by a $5k check from the borrower back to the escrow or lender is irrelevant - either way they borrowed an extra $20k over the purchase price in order to walk away from the transaction with an extra $15k in cash.
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#2259084 - 09/01/21 02:10 PM Re: Disclosing Financed Amounts rainman
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Originally Posted by rainman
If the borrower is paying the costs before closing, then it increases the Closing Costs Paid Before Closing, which in turn will increase the cash out to borrower.

If the borrower is paying the costs at closing by writing a check but the loan amount remains the same, the amount is not included in the Closing Costs Paid Before Closing, which decreases the cash out to the borrower. The theory is that if the borrower is getting a check from the escrow for $5000 but is also writing a check to escrow (or to the lender) for $5000 to cover closing costs, then those costs are effectively being financed. In your $200/$5/$180 example, the borrower is borrowing $200k in order to pay $185k in sales price and loan costs and walk away with an extra $15k in their account after the dust settles. Whether that $15k comes in the form of a $15k check at closing or in the form of a $20k check at closing offset by a $5k check from the borrower back to the escrow or lender is irrelevant - either way they borrowed an extra $20k over the purchase price in order to walk away from the transaction with an extra $15k in cash.
z

That's cool. I'm talking about what goes into the Closing Costs financed though. And, the borrower would get $20k to walk away with in the 2nd example. They are not writing any check to anybody. The lender is doling out the monies for the closing costs, which then become an additional principal balance to the loan. After the $5,000 is doled out for closing costs in this simple example, then $20k is left. They would similarly get $20k back at closing in the other example as well, but that would be after writing a $5,000 check for the closing costs.

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#2259085 - 09/01/21 02:11 PM Re: Disclosing Financed Amounts Compliance NABW
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I'm pretty sure the answer is that there is a way you mark in the LOS that amounts are financed, such as, for instance, not marking certain fees as a prepaid finance charge, but still having them as a finance charge.

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#2259090 - 09/01/21 02:43 PM Re: Disclosing Financed Amounts Compliance NABW
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If I understand you correctly, you are describing an "add on" finance charge - i.e., the borrower pays it over the life of the loan but it is not part of the principal balance that bears interest. I'm pretty sure most LOS's don't account for fees in that way because as far as I'm aware it is very rare for loans to actually be structured that way.

In most cases, if the requested loan amount is $200k and fees are $5k, that $5k is paid at closing and it affects what is paid out to or for the benefit of the borrower. The borrower either would get $15k in cash or if the borrower already paid the $5k in fees separately, they would get $20k in cash. The note amount is $200k. Under Reg. Z, if it is paid from the loan proceeds (by increasing the loan amount or by decreasing the cash out to the borrower or others), it's a prepaid finance charge. Look at the definition of prepaid finance charge in 1026.2(a)(23). Also look at how the "Amount Financed" is calculated under 1026.18. The note amount is a fundamental part of the equation. If the note amount is increased to $205k, it's still a PPFC, but that increases the Amount Financed to $200k instead of $195k.

If your loan docs truly provide for these fees to be paid over the life of the loan "outside" of the principal balance (i.e., the $5k is divided by the number of months in the loan term and added to the P&I payment) - that would really be unusual.
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#2259091 - 09/01/21 03:07 PM Re: Disclosing Financed Amounts Compliance NABW
rlcarey Online
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I guess I am confused about this mystery. Every LOS system on the planet has had this programmed correctly for the last 6 years since the beginning of TRID. If you want to see how different transactions work out - then run some test loans because our attempt to explain this does not appear to be of much help.
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#2259429 - 09/09/21 02:33 PM Re: Disclosing Financed Amounts Compliance NABW
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@rainman No, it would be part of the principal balance. Yes, I do want to see the Amount Financed increased to $200k from $195k, but the description of the calculation in the Regulation doesn't seem to do that. Thank you for clarifying about the PPFC. I already knew it, but just not getting to an understanding that I wanted, so trying to come up with different ways to work it. @RL I don't have access to running test loans, otherwise I would have already done so smile. Thanks anyways.

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#2259440 - 09/09/21 02:51 PM Re: Disclosing Financed Amounts Compliance NABW
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The only way the Amount Financed increases to $200k from $195k is if the principal balance increases from $200k to $205k. But that's what would happen if your $5k is part of the principal balance and your borrower is getting $20k in cash out at closing.
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#2259663 - 09/14/21 01:32 PM Re: Disclosing Financed Amounts Compliance NABW
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How does the amount financed "magically" increase though. That's what I don't get. If you run the calculation according to the Reg, you don't get any increase in Closing Costs Financed. How does the overall Amount Financed increase if Closing Costs Financed doesn't increase?

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