Hi BOLers,

We're running into issues where a lender paid items are throwing variance violations in our LOS. For example, we have a file where we received a PIW after issuance of the LE and unfortunately, did not disclose a revised LE within three business days of discovery. Since the PIW fee is lender paid and not passed onto the borrower, do we have to cure this since it's part of the "Services you cannot shop for"? I've read the convoluted answers individuals are receiving with disclosing "lender paid items" never passed onto the borrower and whether it is actually required. Our organization's stance is to disclose all fees until we actually receive an official interpretation from the bureau (not holding my breath...)

We also do a no closing cost loan (all lender paid settlement costs) and on a couple scenarios, have seen increases in title, settlement and/or notary fees. Do we have to cure these fees if they increase past the 10% and a re-disclosed LE is not issued to reset the baseline? LOs are challenging a cure since it would basically be a double credit (increased fee is lender paid and cure for variance violation).

Any insights here would be really appreciated.

what is a PIW? If it's lender paid, why is it something you must pass on to the borrower?

Property Inspection Waiver. Essentially, a $75 fee that we pay to FNMA directly. Often times, we pay for this but there are transactions where the fee is passed to the consumer instead of them paying for the appraisal.

First of all, what is the criteria for passing it to the borrower or not?
If it's not a good reason, you could get into exam trouble explaining why Mr Smith had to pay but Mrs Jones didn't.

Second, if you run into a PIW regularly, you could be justified in putting on all your original LEs. That way, if it doesn't get used, it falls off the Clod. If it does, you've got the baseline set.

What other fees does your bank feel must be passed on barring CFPB distinctly saying otherwise.

Missed your second question in my response. My understanding is that we should disclose all fees that are required in the transaction and we used to indicate a PIW instead of appraisal on the HUD (as investors wanted to see this).

Are you in the camp that would opine that any fee not passed to the consumer is not required to be disclosed on the LE/CD? So, for the no closing cost loan, we would only need to indicate fees we don't intend to offset with a lender credit (read: pay for at closing)?

Agree this is a slippery slope. We offer a no closing cost option and the normal range of products/terms with either discount points charged or lender credits applied to offset costs. For all no closing cost loans, we would not pass the PIW onto the consumer. For all other loans, we would pass it onto the consumer.

My main question is with curing fees that are lender paid anyway. Is a variance violation independent of the party actually paying the fee? Are lenders treating these separately? In situations where there is no valid changed circumstance and therefore we cannot reset the baseline, are we stuck with crediting the borrower twice (once to pay for the fee and once to cure)?

To answer your second paragraph, no, that's not what I'm saying. Fees have to show on the LE. The notion of whether the credit has to be shown is debatable. Here's one discussion on it. I'm sure there are more. Or you can tag on there to see if Randy or John will further opine on their statements. We don't do no-cost here so my experience is limited to doing full GFEs with a letter of explanation that certain items would be paid for by the bank at closing. The letter stated fee names but not amounts so we weren't tied to any specific dollar amount to credit.

As for disclosing all fees, that's the idea. Isn't there a way to determine if you'll need an appraisal or just the PIW in advance of doing the LE? If not, I'd likely list the appraisal fee on all LEs. Then if you only need the waiver, redisclose.

If this were my dilemma, I'd be doing some google research to see what else is out there on the PIW/appraisal issue.

Two thoughts here to help make discussions more valuable and productive:

1. In your posts, avoid or explain jargon like "PIW" that may seem like a common term to you but may not be obvious to others.
2. When you come upon acronyms and other jargon that aren't clear to you, don't hesitate to ask for an explanation, as Truffle Royale has done here.

There is no need to pay twice.

Example: Standard costs to be borne by borrower. Your LE shows an appraisal cost of $450. It's a 0% tolerance item. You get a notice from the appraiser that the "single-family ranch" is actually a duplex that will require a more costly appraisal (I'm making this up, so forgive me if this scenario would not occur). The appraisal ends up costing $650, but you missed the 3-day deadline for the revised LE, so you can't adjust the $450 cost basis. At closing, you show $450 in the Borrower-Paid column of Section B, and $200 in the Paid by Others column, preceded by (L) to indicate you paid it. The off-disclosure math to calculate a cure for this cost subtracts the LE-disclosed amount of $450 from the cost actually paid by or imposed on the borrower of $450, for a result of $0.

If you had listed the entire $650 in the borrower's column, charging the full amount to the borrower in the settlement, your math would result in a cure payment for this cost of $200, and you would have to disclose in the Calculating Cash to Close table that the difference exceed legal limits and plug the $200 into the Lender Credits figure in Section J, adding another "nostra culpa" explanation there. The net result, you pay the $200 one way or the other -- but you don't need to pay it twice. It's the beauty of the Bureau's having created the allocation columns (borrower, seller, others) for page 2.

Example: Once again, customer-paid costs. Someone screws up and low-balls the LE disclosure of your Administrative Fee on Section A at $200, when it should have been $350 for the loan program applied for. You can't adjust this mistake because no changed circumstance will save you. In this case, the fee is payable to the lender, so splitting it on page 2 of the CloD between the borrower and the lender doesn't make sense. You just charge the amount shown on the LE -- $200 -- in the Borrower-paid column. No difference. No cure.

IMO, your lender credits should be disclosed. This allows for true transparency to the customer.
As for your Property Inspection Waiver, the cost is being paid for by your bank. If that charge happens to exceed the 10% tolerance, and a cure is required. So yes, you are "stuck with crediting the borrower twice (once to pay for the fee and once to cure)".

Please explain how the PIW ends up in the 10% group and why you believe there is a double payment required.

My answer is based on categories that can increase up to 10%. Correct me if I am wrong but the PIW is required in place of an appraisal. Would that not qualify it as a charge falling int hat category?

Thanks Truffle Royale. As for the PIW, under normal circumstances, we would receive this upfront before disclosing through Desktop Underwriter findings. We currently do what you stated - disclose appraisal fee upfront then add PIW under a re-disclosure if we receive a PIW after the initial LE goes out.

Will definitely research this more and post back here.

Thanks, John. This is very helpful. Now, just to confirm, there are two ways we can do this with one actually indicating a formal "cure" on the CD. Assume the scenario below is a "no cost" loan where we are covering all settlement fees and we allow borrowers to shop for title (10% variance).

Settlement fees underdisclosed initially ($1000) and we now have a $100 cure required (increased to $1200). Not a valid changed circumstance, so we would have the following options:

(1) Indicate the full amount as lender paid, so settlement fees would be itemized for a total of $1200 indicated in the "Paid By Others" column
(2) Indicate the originally disclosed amount as lender paid and the increase as borrower paid, then apply a cure to Section J indicating the cure for "x" fee. Aggregate of lender credit (cure) and lender paid items would be $1200.

We have been doing option (1), but I feel as if we are brushing the violation under the rug without explicitly presenting a "cure" on the CD. From a consumer impact perspective, the net result is the same.

I would disagree with this opinion. The PIW is paid directly to Fannie, is a required service to obtain an extension of credit, and the consumer cannot shop. This fee would be placed in the 0% category (and for reference purposes, used to go in the 800 section of the HUD).

Separately, I am also in the corner of crediting the PIW fee as lender paid and curing the increase (in the 0% category) as I believe these should be analyzed independently. The party responsible for the fee is exclusive of whether or not you disclosed all required fees in good faith.

@John - I'll make sure the acronyms are defined next time I post this for the sake of others. Sorry for the confusion!