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#501926 - 02/22/06 01:43 PM No Closing Cost Mortgage Loan???
complianceman Offline
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complianceman
Joined: Mar 2005
Posts: 687
New Albany, IN
Our mortgage department wants to introduce a "No CLosing Cost" mortgage product during a meetign with local realtors. The flyer (which has a good chance of being provided to an "uneducated consumer") that I have been provided (which has a good chance of being provided to an "uneducated consumer") with does not have any disclaimers and since I haven't dealt with this type of product before, I was looking to assistance with any applicable disclaimer.

I know I need to disclose what fees are not included as closing cost items, I.e., attorney fees, title insurance and prepaids, but what else am I missing?
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#501927 - 02/22/06 02:17 PM Re: No Closing Cost Mortgage Loan???
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
Quote:

I know I need to disclose what fees are not included as closing cost items, I.e., attorney fees, title insurance and prepaids,




I'm not sure how you are going to be able to advertise a "no closing costs" mortgage and then charge them "closing costs". Attorney fees and title insurance are closing costs - last I checked.
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#501928 - 02/22/06 02:35 PM Re: No Closing Cost Mortgage Loan???
complianceman Offline
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complianceman
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Posts: 687
New Albany, IN
RLCarey,

I understand your point here. Where can I find a regulatory definition of closing cost? I may get into a heated debate with our mortgage group so any guidance would be appreciated.
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#501929 - 02/22/06 02:38 PM Re: No Closing Cost Mortgage Loan???
OldSchoolBanker Offline
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Joined: May 2005
Posts: 662
FL
The only No Closing programs I have seen involve loans sold in the secondary market where the loan rate provides the selling institution high fee income, enough to cover the borrower's closing costs and provide the lender with a profit. In this case the closing costs are shown as POC on the HUD 1.

I would recommend a disclosure on any advertising piece that states "Other lower rate loan programs may be available". The reality is they are likely paying for the closing costs in the loan rate.

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#501930 - 02/22/06 02:52 PM Re: No Closing Cost Mortgage Loan???
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
You are not going to find regulatory guidance on this issue as it is more of a UDAP issue. While not directly applicable, you can look toward the HELOC advertising rules for guidance on this principle: "For example, an advertisement could not state “no closing costs” or “we waive closing costs” if consumers may be required to pay any closing costs, such as recordation fees. In the case of property insurance, however, a creditor may state, for example, “no closing costs” even if property insurance may be required, as long as the creditor also provides a statement that such insurance may be required."

I would suggest doing nothing less, even on a closed-end loan. IMHO - You would be begging for a call from your Attorney General otherwise.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#501931 - 02/22/06 03:02 PM Re: No Closing Cost Mortgage Loan???
Kathy Brooks Offline
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Kathy Brooks
Joined: Dec 2002
Posts: 95
Is there guidance for a bank engaging in secondary lending? I am looking for specifics on what limitations there are on the bank receiving fee income, rate spreads, etc. For example, if we escrow funds for rehab/remodeling investor mortgages and service the draws what is the acceptable line item on the HUD to charge for this service? It doesn't look like origination fee is appropriate, maybe inspection fee? Altho, not sure why we would want to do the escrow service if the loan belongs to the investor. Thanks in advance.
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#501932 - 02/22/06 03:13 PM Re: No Closing Cost Mortgage Loan???
complianceman Offline
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complianceman
Joined: Mar 2005
Posts: 687
New Albany, IN
What if we title the product as a Limited Closing Cost Option and include the following in the disclaimer section of the advertisement:
* Fees the borrower may be required to pay
* A $100,000 loan scenario disclosing applicable payment amount and APR
* The applicable loan type(s)(Conforming)
* Notice of requirements of homeowners and flood insurance, if applicable.

Does this pass? I am a conservative person so I like LARGE disclaimer windows.
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#501933 - 02/22/06 03:24 PM Re: No Closing Cost Mortgage Loan???
upstateNY Offline
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Joined: Apr 2003
Posts: 933
New York State
When we really want to make this clear, we say the following: "No Closing Costs means: • No points • No title insurance fee • No application fee • No flood check fee • No credit report fee • No appraisal fee • No mortgage recording fee • No abstract title or search fee • No bank attorney fee. If the customer selects an attorney to represent him/her, customer is responsible for attorney’s fee. Property and hazard insurance are required and are the responsibility of the borrower."

Clearly stating what is and is not included leaves little room for debate.

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#501934 - 02/22/06 03:31 PM Re: No Closing Cost Mortgage Loan???
upstateNY Offline
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Joined: Apr 2003
Posts: 933
New York State
A little more advice. Make sure that the costs are disclosed on your HUD settlement statement as POC (paid outside closing), and not included in the fee column, and not added in to the total.

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#501935 - 02/22/06 09:02 PM Re: No Closing Cost Mortgage Loan???
mbanker Offline
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Joined: Oct 2005
Posts: 15
Many banks offer 'no closing cost" helocs that exempt certain items. Specifically, I have seen title insurance vs a title search exlcuded and consistently in FL you see lenders excluding the intangible and recording taxes due to thier cost. My old bank used to offer a no closing cost heloc through our wholesale side and we had a specific closing cost waiver executed along with the upfront disclosures that itemized both covered and non-covered costs. That was a few years ago and we were acquired, so I don't have the sample docs though. I would look to Wachovia or SunTrust for an example of their "no closing costs" disclosures.

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#1038942 - 09/10/08 05:09 PM Re: No Closing Cost Mortgage Loan??? mbanker
river girl Offline
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Marketing just asked me to research the following. THey want to do a mailing to non members advertising a "no closing costs" loan up to 3% of the loan amount. HOWEVER, if they pay off their loan within the 1st 36 months we will recoup those costs.
Can we still call it "no closing costs" if they might have to pay and is there a requirement for them to sign something acknowledging the potential fees? If so, where would I find an example to use. Thanks

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#1038969 - 09/10/08 05:25 PM Re: No Closing Cost Mortgage Loan??? river girl
Dan Persfull Offline
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Dan Persfull
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Posts: 47,517
Bloomington, IN
You would have to contract for the "potential fees" othewise you would not be able to collect them.

Also, IMO, these "potential fees" would be a prepayment penalty and you will have to look to state law to see if it's allowed and how much you can charge for a prepayment penalty.
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#1039048 - 09/10/08 06:04 PM Re: No Closing Cost Mortgage Loan??? Dan Persfull
river girl Offline
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If I find that state law allows...what exactly do you mean by contract for the fees? Would this be a type of agreement signed at closing stating the total amount of $ we waived and that they could be required to pay?

On the GFE, we are listing the fees as POC but then do we also add a new fee, the Recapture Fee and add up all the POC to get the recapture fee to disclose? Is this necessary and if so, would it get listed as POC since it could eventually be paid at a later date. Sorry for the confusion so I am confused on this.

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#1039134 - 09/10/08 06:36 PM Re: No Closing Cost Mortgage Loan??? river girl
Dan Persfull Offline
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Dan Persfull
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Posts: 47,517
Bloomington, IN
You would have to contract in the loan agreement that if they paid off the loan within the specified time they would have to pay the bank $XXX.XX. If you do not contract for the fees in case of an early payoff then you have no legal right to collect them.

You would not show an "recapture fee" on the GFE.
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