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#2262607 - 11/17/21 07:49 PM Application Fee or Deposit/Prepayment
Eric The Underwriter Offline
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Joined: Sep 2018
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Cutting right to the chase, we charge our applicants a fee up front that is later credited to the borrower at closing. We do not retain the fee as income, it is simply credited towards the closings costs every time. This fee has gone by various names in the past (Origination Fee, Application Fee, Commitment Fee)....but the nature has not changed. In the event that an applicant cancels their application we would refund the fee less any charges incurred already in processing the file. We currently quote this fee on the LE in the Origination charges, then show a lender credit to offset.

I would argue that this is not a fee at all and should not be quoted on the LE as such. For all intents and purposes, this is a deposit or a prepayment of other fees quoted. My preference would be to leave it off the LE completely and possibly include a disclosure in the application documents that explains the fees and details the borrower and lender rights and responsibilities. I could change the name to a "deposit" or "prepayment" if that helps in anyway.

Does anyone have a similar fee or does anyone have an opinion on this matter. Can anyone point me to any regulatory language or other sources that would confirm or deny my assertion?

Thank you for the help,

Eric

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#2262622 - 11/17/21 10:48 PM Re: Application Fee or Deposit/Prepayment Eric The Underwriter
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I would be concerned if the bank had the intent to proceed from the customer prior to charging this 'deposit' fee.

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#2262624 - 11/18/21 06:28 AM Re: Application Fee or Deposit/Prepayment Eric The Underwriter
rlcarey Online
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rlcarey
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Galveston, TX
" In the event that an applicant cancels their application we would refund the fee less any charges incurred already in processing the file."

Not how you think you can leave it off of the LE is that is the case. I also assume you have the borrower sign some sort of agreement when they pay this fee after the intent to proceed is received.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2262637 - 11/18/21 02:24 PM Re: Application Fee or Deposit/Prepayment Eric The Underwriter
B2B Offline
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#2262638 - 11/18/21 02:45 PM Re: Application Fee or Deposit/Prepayment Eric The Underwriter
Eric The Underwriter Offline
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To clarify, yes, this fee is always collected after the borrower gives their intent to proceed.

B2B.....right, that is exactly what i am saying. I knew i had seen that referenced somewhere but never looked back at Item 1 under the Lender Credit FAQ (duh). My issue is that if i can't show the amount as a credit, then my LE will always overstate the total amount of actual costs incurred by the member at closing. There has to be a logical way to handle this and the only thing i can think of is to leave the deposit/fee off the LE completely.

rlcarey....What are you saying with your first sentence (after the quote)? And, yes, we do have an agreement the borrower signs after they give intent to proceed.

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#2262649 - 11/18/21 04:03 PM Re: Application Fee or Deposit/Prepayment Eric The Underwriter
rlcarey Online
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rlcarey
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Galveston, TX
Sorry for the typos. I meant to say how could you leave off the charge and the lender credit on the LE? They have to pay the fee before closing to get the loan. If the loan closes, they get a lender credit back for the deposit. That sounds like a general lender credit that you will provide and you need to read Question #2. A charge payable to the creditor is not a fee that the lender is absorbing and the consumer has to actually pay the fee to move forward with the loan. When the loan closes, that qualifies the consumer for a general lender credit. You cannot take that fee and then break it out to other charges. The deposit will also be a prepaid finance charge.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2262654 - 11/18/21 04:51 PM Re: Application Fee or Deposit/Prepayment Eric The Underwriter
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
We do not retain the fee as income, it is simply credited towards the closings costs every time. . . . . . In the event that an applicant cancels their application we would refund the fee

I'm curious why the fee is collected at all?
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#2262668 - 11/18/21 06:10 PM Re: Application Fee or Deposit/Prepayment Dan Persfull
Eric The Underwriter Offline
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It serves the purpose of discouraging people from canceling mid-way through the process after we have already invested staff time and funds (appraisal, credit report, etc) into the transaction. Taken to the extreme....if we didn't collect something, we could have people applying for a refinance every time they want a free professional appraisal of their home with no real intention of closing.

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#2262670 - 11/18/21 06:28 PM Re: Application Fee or Deposit/Prepayment rlcarey
Eric The Underwriter Offline
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I feel like that is semantics. If we say you have to pay a fee and we will give you a credit at closing, then i completely agree with you. That has been our stance all along. However, if we say we hold a certain amount of funds to be applied at closing towards a certain fee...then that is almost verbatim what question one, paragraph 3 says. We collect, hold for a period of time, then apply to cover closing costs. Does it come down to how this is discussed, explained, advertised and disclosed?

Would there be any difference if we were simply collecting the full cost of the appraisal up front (after intent to proceed was received). CD could list the appraisal fee as POC. Nothing in the origination charge and not lender credit. The main difference is that we are explicitly stating the fee we are collecting is the appraisal fee.

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#2262757 - 11/20/21 08:27 AM Re: Application Fee or Deposit/Prepayment Eric The Underwriter
rlcarey Online
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rlcarey
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Galveston, TX
Then you would need to ask the borrower to prepay the fee amounts as listed on the LE that you want to collect after the intent to proceed. You are not going to ask them to just give you $500 and you will willy-nilly apply them to any costs incurred as that would be a lender credit. However, if you tell them through a separate agreement that they have to pay you (non-refundable if obtained by us) the $27 credit report fee, the $17 FHD fee and the $450 appraisal fee, then you would not get into a lender credit issue.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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