Would someone please help me to understand why the APR in the Fed Box is much higher when the customer pay's no fees - the bank is absorbing "all" fees. We disclose the fees on the GFE and final TIL as POC. I'm posting this anonymously because I'm embarrassed to have to ask for a simplified answer. I'm looking for something easy to give our people in the branches who have to explaine this to the customer.

It appears you are referring to a no closing cost loan where the bank pays all closing costs. You are correct in that the fees must be disclosed on the GFE and on the HUD as POC by the bank. However, these are not prepaid finance charges for the borrower as they are not paying these fees. Only prepaid FC paid by the borrower are included on the TIL. It sounds like your APR is overstated.

I agree, it sounds like you are including those fees in your PPFCs. Make sure the items are marked "POC Lender" in your documentation software and that should correct the problem.

This is addressed in the commentary to Reg Z at 226.4(a), comment #2 labeled "Costs of doing business".