Our lender provided an LE reflecting a general lender credit of $847 however at time of CD that section reflected $0. I've always understood that once you gave a lender credit you could not remove/decrease it. The lender did a change in circumstance (CIC) during the loan process to change loan programs/rate and that is when the lender credit was removed. After further investigation, it appears the borrower was no longer eligible for one loan program where a lender credit is acceptable to one where he cannot. That being said, is that a valid reason to decrease/remove the lender credit? The CIC form never stated the change was due to eligibility reasons...

It sounds like this was a valid CC.
The CIC is an internal form so if it doesn't tell the full story, you can amend it so it does.

The other situation where a general lender credit on the LE can disappear legitimately is when the CD shows that credit applied as specific lender credits. And a third is specifically described in the commentary -- when the borrower and lender execute a rate lock that adjusts the pricing of the loan so the credits are morphed into reduced points or a reduced rate, etc.

I'd like to visit this again. If we have a "no cost" loan, do we need to disclose any fees on the LE or CD? Lender is paying all fee for a small loan.

Not much has changed:

37(g)(6) Total closing costs.

Paragraph 37(g)(6)(ii).

2. Credits or rebates from the creditor to offset a portion or all of the closing costs. For loans where a portion or all of the closing costs are offset by a credit or rebate provided by the creditor (sometimes referred to as “no-cost” loans), whether all or a defined portion of the closing costs disclosed under § 1026.37(f) or (g) will be paid by a credit or rebate from the creditor, the creditor discloses such credit or rebate as a lender credit under § 1026.37(g)(6)(ii). The creditor should ensure that the lender credit disclosed under § 1026.37(g)(6)(ii) is sufficient to cover the estimated costs the creditor represented to the consumer as not being required to be paid by the consumer at consummation, regardless of whether such representations pertained to specific items.

Wasn't their opinions that you could not show fees being paid by the lender on the LE, but you would need to show them on the CD paid by lender? [this was an effort to not have to worry about lowered credits from LE to CD and seemed to align with the precise wording in the regulation since the customer wouldn't be paying said costs]

If the borrower will never pay the fee, why disclose it?

You have to disclose required services/fees on the CD, even if the borrower isn't responsible.

When TRID 1.0 was published in 2013, the Bureau offered the following in its discussion on lender credits under section 1026.37(g)(6). You’ll find it in the paragraph starting here: https://www.federalregister.gov/d/2013-28210/p-2050:

Ok, that's what we've been doing and will continue to do so. Thanks for the input!

Would that mean if we showed the fees on the LE (but have it set up in the system as lender paid) if the fees dropped in amounts or we ended up not needing the service after all, we wouldn't be bound to give the borrower money that was going to the particular fee? This would be a no-cost loan we're doing for the borrower where they pay nothing, but aren't supposed to be getting money back.

The drop in those costs would not create a tolerance problem, but the lender credit on the loan estimate is a "negative cost" and you have to honor it, unless, I would submit, you issued a revised LE with the reduced costs and reduced lender credit within 2 business days of knowing the costs would be lower than estimated.

The theory behind that is that the "negative cost," if made smaller (loan estimate lender credit of $1,000, closing disclosure lender credits total $500) increases the cost to the borrower, which isn't permitted beyond the 0% tolerance for lender credits, unless you replace the LE lender credit amount using the revised loan estimate when the change is caused by a borrower-requested change or a changed circumstance.

So this isn't something we could re-disclose on a Closing Disclosure though, it'd definitely need to be an LE, correct? Would the information of the not needing the services be considered the changed circumstance? Borrower in our situation I should say is paying nothing other than their property taxes and the interest due. We're covering everything else, so nothing is being imposed on them. We have a few fees that we thought we would end up needing for services, but ended up not needing so now we've got $450 in lender credit for those items as going back to the borrower.

I'm going to piggyback on this thread - For "No Closing Cost" mortgages, is it acceptable for the Lender Credits to be less on the Closing Disclosure than originally stated on the Loan Estimate, due to a decrease of Title Endorsement/Abstract Fees/Recording Fees, or do we still have to credit the amount originally disclosed on the LE?

Lender credits basically can never decrease unless there is a changed circumstance directly related to the provision of lender credit credits, such as those associated with rate locks.

I am admittedly treading outside the tight circle of circumstances that Randy Carey described, but I believe that, if your original loan estimates were in good faith (carefully researched, with then-current costs), and you learn later of a changed circumstance or a borrower-requested change that eliminated the need for one of those services, you could use a revised LE or the CloD (or corrected CloD) if issued within 3 business days of obtaining that knowledge, to restate the estimate, eliminating that service and reducing the lender credit estimate accordingly; PROVIDED THAT you had carefully documented that the lender credit on the loan estimate was a total of specific credits covering specific services that the bank had agreed to pay for in a "no-cost" or "low-cost" loan arrangement; demonstrated that the elimination of the service was a changed circumstance under 1026.19(e)(3)(iv)(A) or (B), or resulted from a borrower-requested change under 1026.19(e)(3)(iv)(C); and delivered a timely LE or CloD in compliance with 19(e)(4).

In this case, the increased cost being updated with the revised LE or the CloD is the lender credit, which is a negative cost to the consumer, so that a reduced loan estimate is an increased cost to the consumer with a 0% tolerance under 1026.19(e)(3)(i).

It was Adam who first led me to believe that this treatment conforms to the regulation. I've asked the Bureau to comment on this reading of the rule, but have not yet had my call back.

Thank you John for the clarification. We have been documenting the file during the entire loan process and did convey to the Borrower this was a no-cost loan (no closing costs financed).We just received the approval from our Underwriting Dept. certain services were not required, but in the normal loan process would be so we in turn upfront disclosed in good faith the services were needed, but lender would pay for it.

A little late to this thread, but I thought it would be beneficial to expand on this. My assessment of this comes from the preamble to both the original TRID rule as well as the 2017 TRID revisions. Both preambles say something similar to this:

"With respect to whether a changed circumstance or borrower-requested change can apply to the revision of lender credits, the Bureau believes that a changed circumstance or borrower-requested change can decrease such credits, provided that all of the requirements of § 1026.19(e)(3)(iv), discussed below, are satisfied.”

For those looking for a bit better explanation of this (and a disclaimer on why it isn't a good idea to reduce lender credits without careful and thorough consideration), I wrote an article on this topic here: https://www.compliancecohort.com/blog/reducing-a-lender-credit-due-to-a-changed-circumstance.

For what it's worth, I agree it's not something to be taken lightly. When the attorney from the CFPB (so glad I don't have to change that to BCFP!) responded, I was cautioned that, although the premises in my email to them were correct (essential what Adam said in his article), they could not confirm that they would apply to the exact scenario I had proposed. "Each case has to be looked at on its own merits" was the thrust of the response.

Of course, that fits with the Bureau's usual "this isn't an official comment or analysis, don't record this call, don't use my name" warnings that accompany every bit of unofficial guidance from the Bureau.

I'd like to visit this again. The branch gave a $9,000 lender credit on the LE which look care of most fees. The actual fees on the CD were $7,900.00. Is the lender stuck with providing the $9,000 lender credit on the CD therefore resulting in cash back to the borrower? If yes, when they run the loan through AUS, the AUS findings is giving a message stating it's trying to offset a required down payment. They think they'll have an issue with the secondary market investor.

Well, your investor is not going to allow you to lower general lender credits that where reflected on the LE either. Either way I think you have bought yourself a portfolio loan.

We originally told the branch a lender credit is a credit and cannot be reduced so we'll see what happens. Thank you!

None of the lender credit can go to the borrower as cash. If you use it all up and there is any left over, it simply get's PC'd ... Principal Curtailment or principal reduction. Its basically a fee that just eats up the remaining credit as it cant go to the borrower.

So for your scenerio there'd be a PC fee of $1100.

ah, Hawk, what's your citation for that statement?

That is true. A principal reduction is an acceptable method to apply a TRID cure if you are trying to meet specific secondary market requirements. But it is still a cure.