Help! We have a situation where a production team used part of a general seller credit to cover part of the upfront mortgage insurance on a conventional mortgage where the QM points and fees test had failed due to the points and fees charged equaling over the 3% threshold. Would this be an appropriate course of action to get the points and fees below the 3% threshold?

If the upfront MI premium or a portion thereof was not excludable under 1026.32(b)(1)(i)(C), then this action would not lower the points and fees.

1026.32(b)(1) - Comment 2. Charges paid by parties other than the consumer. Under § 1026.32(b)(1), points and fees may include charges paid by third parties in addition to charges paid by the consumer. Specifically, charges paid by third parties that fall within the definition of points and fees set forth in § 1026.32(b)(1)(i) through (vi) are included in points and fees.

I should add that arbitrarily allocating any general seller credit to any finance charge likely would create a finance charge violation. The creditor cannot pick and choose what to apply a general seller credit. A general seller credit is disclosed on Page 3 of the CD as a seller credit and not distributed by the lender to charges listed on Page 2 unless there is an agreement between the buyer and the seller to pay for specific services.


Paragraph 38(j)(2)(v).

1. General seller credits. When the consumer receives a generalized credit from the seller for closing costs or where the seller (typically a builder) is making an allowance to the consumer for items to purchase separately, the amount of the credit must be disclosed. However, if the seller credit is attributable to a specific loan cost or other cost listed in the Closing Cost Details tables, pursuant to § 1026.38(f) or (g), that amount should be reflected in the seller-paid column in the Closing Cost Details tables under § 1026.38(f) or (g).