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#247968 - 09/23/04 12:43 PM finance charges/prepaid finance charges
pjs Offline
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pjs
Joined: Aug 2004
Posts: 10,321
oHiO
I am trying to get the finance charge vs prepaid finance charges through my head - I need some help. I have already printed off the fiance charge chart. Examiners found a secondary market (freddie mac) loan that had a freddie mac fee (cash out fee/high LTV) on the TIL that should have been a prepaid finance charge and was not done correctly on the TIL. I am trying to understand the difference between finance charge and the prepaid ones.

With the freddie mac loans we have the underwriting fee, tax related fee, life of flood fee, odd days interest, 2 pmi payments(if applicable)origination fee(if applic) and the points (if applic) as prepaid charges.

It says that prepaid finance charge means any finance charge paid separately in cash or by check before or at consummation of a transaction, or withheld from the proceeds of the credit at any time.
Those listed above would fall in the withheld from the proceeds of the credit because the first two don't apply on the secondary market loans-the fees are in the settlement statement.
I guess I just do not understand the difference of prepaid finance charges vs finance charges- I cannot get it into my head.

Also, freddie mac will be charging a fee now for mobile home loans to the borrower so I am thinking that that fee would be classified as a prepaid. Thanks for your help. I need it.

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#247969 - 09/23/04 01:08 PM Re: finance charges/prepaid finance charges
Richard Insley Online
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Richard Insley
Joined: Oct 2000
Posts: 10,179
Toano, VA
What you need to understand is "what is a Finance Charge." Once you have that under control, it will be very easy to determine which charges are "prepaid" Finance Charges. As you quoted from Reg Z, the test for PFC requires two steps:
1. Is the charge a Finance Charge? (governed by Section 226.4)
2. If this charge is a FC, is it also collected at or before settlement? ("withheld from proceeds at any time" applies mainly to construction loans and other cases where you have multiple advances)
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