Hello everyone,

We occasionally run into the issue of reissuing a CD after consummation due to recording charges. How we normally handle is that we will update the CD to disclose the actual charge incurred. A credit will usually be given to the loan balance in the case that the closing costs were added to the loan amount requested.

When updating the CD, the total loan amount and monthly payment is automatically updated within our LOS. Usually at the time that the CD is reissued, the loan has already been booked and is set up disclosing the loan amount and monthly payment that was disclosed at the time of closing, matching the Note.

Our internal audit department is questioning whether the system should be updated for the corrections, thus giving the borrower a lower monthly payment.

Should this be done? If so, is it an issue that the CD and Note do not match. We generally only send out a revised CD, not a Note.

Does anyone have any thoughts or opinions on the matter?

Thank you.

The note is the legal obligation, the CD is a disclosure. The CD has to reflect the legal obligation - you should not be changing the loan amount or the required payments on the revised CD.

These things are better handled by direct charging the borrower a fee, imho, rather than capitalizing such things to the loan amount.

I think they are talking the other way around. They need to reflect a principal reduction - not adjust the loan amount.

same question asked and answered here

I did read that original post, but because in our case the fees are financed, they really shouldn't be getting a check back. It should be a principal reduction.

I'll get with our LOS company to try to figure out a way to disclose properly.

Thank you,

Yes, sorry, even then I think it is better for the borrower to get a check. It was the borrower's right initially to do what they want with the money. The cure should give them that same right. If they want to apply to principal, then great, but it is their money.

"because in our case the fees are financed, they really shouldn't be getting a check back. It should be a principal reduction"

Why?

What would be the benefit of doing a principal reduction compared to cutting a check to the borrower to cure the amount? We have an investor telling us since the VA Funding Fee was financed, we cannot do a credit, that we must do a principal reduction.

Because some secondary market programs prohibit cash back to the customer.