Show Lender Credit only in Closing Disclosure?

A bank has said that on their “no cost” home equity loan, they will disclose all fees on the LE without showing a lender credit (but will tell the borrower that the bank will absorb the fees at closing). At closing, the CD will reflect a Lender Credit for all fees. Their reasoning is that if a fee goes down, they will not end up refunding money to the borrower because the lender credit was too high. The borrower does not end up paying anything, and the bank does not have to refund due to a change in fees. This bank said their attorney blessed doing it this way because of information he read in the preamble. Has anyone heard of this?

No, it doesn't sound compliant to me. The rule talks a lot about specific and non-specific lender credits and how to disclose them on the LE; why would they bother if an option was to just omit them from the LE and wait to see what was needed on the CloD? That's my 2 cents for whatever it's worth; i don't really have time at the moment to find you any specific citations...maybe someone else will chime in.

19(e)(3) Good faith determination for estimates of closing costs.

19(e)(3)(i) General rule.

5. Lender credits. The disclosure of “lender credits,” as identified in § 1026.37(g)(6)(ii), is required by § 1026.19(e)(1)(i).

Pretty much says it all I think.

Will the consumer be required or legally obligated to pay any of the charges? Will they be required or legally obligated to pay them and then you'll give them a lender credit based on some sort of game played in relation to the choice of an interest rate? I only ask because several others and myself have gone to the CFPB with questions similar to yours and have all received the same responses. Each time the questions I've posed are what the CFPB asks. The CFPB response we've all been generally getting goes something like this:

Forget about adjusted origination charges as disclosed today under RESPA (block 1, 2 & A). People are confusing what they know and do under RESPA today with the TRID rules, especially with the term "no cost" and the practice of disclosing lender credits.

A “no cost” loan is not defined within the Integrated Disclosure rule. There are references in the section-by-section analysis on only two pages. The context of a “no cost” loan with respect to the section-by-section analysis equates to a required service that must be paid by the borrower but is to be financed as part of the loan proceeds rather than paid in cash at closing [12/31/13 F.R. page #79825].

Sections 1026.37(f)(2) and (f)(3) of the Integrated Disclosures rule require an itemization of the cost of each settlement service the consumer “will pay” in connection with the loan, either in cash or by financing the cost as part of the loan proceeds.

In other words, if the consumer will not have to pay for the settlement service, it’s not required to be disclosed. In this case it’s treated as an overhead expense. For example, a lender that does not charge for credit reports or appraisals would not be required to disclose these services. Caution, if a required service is not disclosed it cannot be added back at a later date.

If the consumer must pay the cost for a settlement service but will be provided a lender credit to offset some or all of the cost, the service must be itemized as well as the lender credit. For example, if a lender offers an interest rate that provides a lender credit to offset some or all of the charges required to be paid by the borrower, the lender credit and the cost of the services must be disclosed.

I need to clarify one of my comments, "no cost" shows up on couple of more pages but still isn't explicitly defined. My Adobe word search failed me. Anyway... one of the references is in the commentary to 37(g)(6)(ii) #2 but according to the CFPB that doesn't trump 37(f)(2) and (3). Sorry for the omission/understatement of the "no cost" # of appearance. It doesn't change the overall response from the CFPB.

It's good that individual stakeholders are able to obtain unofficial responses like the one that Jerod describes. My problem with those opinions, however, is that they aren't official, and there's nothing to say that the FDIC, FRB, OCC or NCUA (or Bureau, for that matter) examiner who walks in an institution's door two years from now is going to acknowledge or even be aware of those Bureau responses. And some of the questions are even more weighty than the one discussed in this thread.

I'm still hung up on this entire discussion due to the 'specific credits'. Why would that exist if the lender is knowlingly paying for specific items. It makes no sense to me that they would be contradicting that entire discussion/section by stating the above.

I would second the statement RR has made. This goes against everything we have previously discussed and the purpose of a "specific credit."

Jerod, can you help us with how you came to this determination?

In the example of a credit report fee that we always waive I am operating under the assumption that we will always have to disclose this even if we never charge - just as we are required to do today even though it serves no purpose.

Here is how I believe this would be shown if we always waive the credit report fee.

Loan Estimate
*Credit Report Fee in - B. Services You Cannot Shop For
*We then show an offsetting lender credit as a negative in - J. Total Closing Costs

Closing Disclosure
*Credit Report Fee in - B. Services You Cannot Shop For (Shown in the "Paid by Others" column with a (L) for lender paid)
*We show the offsetting lender credit as a negative in - J. Total Closing Costs

While the CFPB may have made that statement to some individuals that have asked and believe me, it would make things a lot easier and I would like to believe it, I am having a hard time reconciling it with the preamble to the regulation in which they specifically stated:

The disclosure of lender credits on the Loan Estimate points to a tension between having
an accurate and comprehensive disclosure of the costs associated with the extension of credit and
the fact that the Loan Estimate is disclosed early enough in the real estate settlement process that
the exact extent of the services required, and services that may not be required, is not completely
known by the creditor at the time the Loan Estimate is issued. To merely ignore services that are
most likely going to be obtained if a creditor intends to pay for the service would be an
unreliable standard for a consumer. Information regarding the services for which the consumer
will be likely to pay, either directly or through a higher interest rate, may be useful to consumers
when comparison shopping or understanding the nature of the mortgage loan transaction. The
lack of specific credits on the Loan Estimate also facilitates comparison shopping, since a
consumer would have to analyze the extent that specific credits are being utilized by the creditor
to offset charges in the aggregate. Allowing specific credits on the Loan Estimate also could
lead creditors to include charges with an offsetting credit even when the creditor does not require
a specific service, increasing information overload and reducing the ability of consumers to
identify loans with terms that are better for their particular situation.Ignoring specific credits for
services the creditor intends to pay also can reduce the accuracy of the cash to close amount
disclosed under § 1026.37(h).

Up until a month ago our take was the same as yours and others who have posted. You show the fee in "B" with a credit in "J". We then had several clients who had attended our various seminars and webinars call us and explain that they had received a different take from the CFPB. I also reached out to other consultants and a state Banking Association to see if they were hearing the same thing. They too had contacted the CFPB and received a similar response. Many of them spoke with the CFPB's David Friend. Having known him from several conversations re: the RESPA 2010 changes, I reached out. David called me back a few days later and provided me with the same interpretation that our clients and others had received, which I outlined in the previous post.

In my conversation with the CFPB and from what I heard from the others, there were two areas that were commonly stressed in each of the conversations:

1. The borrower's legal obligation to pay a charge.

2. Sections 1026.37(f)(2) and (f)(3) of the Integrated Disclosures rule requires only an itemization of the cost of each settlement service the consumer “will pay” in connection with the loan, either in cash or by financing the cost as part of the loan proceeds.

The regulation and preamble, et al just does not back this up. And we all know where one person's opinion at HUD got us before...unless it's written, it didn't happen and if it's written and not published, another PTB can come along and say 'that's not right'. I had that happened in 2010. Written by one and retracted by another. I'm afraid that unless and until the Bureau puts something in writing, we will continue to disclose and credit as we always have. Regardless of whether or not it makes sense.

I just wanted to add that I too have reached out to the CFPB on this question and received a call back today. The response, from the two attorneys who called me back, was the same as what Jerod was told.

It comes down to (ignoring what the Preamble says) that the regulation says to disclose the terms of the legal obligation (and the customer is not legally obligated to pay those fees the lender is paying) and that you must, under 1026.37, disclose fees the customer "will pay", and the customer will not be paying. It is their feeling (CFPB attorneys) that the bank can absorb whatever costs it wishes to as a cost of doing business. There is no CFPB limit on what can be paid by the bank. Telephone calls, postage, credit reports, appraisals, etc. can all be absorbed.

1026.17(c): Basis of disclosures and use of estimates. (1) The disclosures shall reflect the terms of the legal obligation between the parties.

The customer is NOT legally obligated to pay the fees that the bank is absorbing as a cost of doing business.

1026.37(f)(2) Services you cannot shop for. Under the subheading “Services You Cannot Shop For,” an itemization of each amount, and a subtotal of all such amounts, the consumer will pay for settlement services for which the consumer cannot shop in accordance with § 1026.19(e)(1)(vi)(A) and that are provided by persons other than the creditor or mortgage broker.

1026.37(f)(3) Services you can shop for. Under the subheading “Services You Can Shop For,” an itemization of each amount and a subtotal of all such amounts the consumer will pay for settlement services for which the consumer can shop in accordance with § 1026.19(e)(1)(vi)(A) and that are provided by persons other than the creditor or mortgage broker.

In the last two points, the consumer will not be paying directly for the costs. It may or may not be buried in the interest rate.

Thanks KB. Not that I believe you over Jerod, but the evidence is apparently becoming overwhelming that the CFPB has taken this approach. I will inform my clients as such going forward and suggest they make their own contact with the CFPB and document it.

It is a beneficial position...one I am sure many wish had been known for a few years!

Well, known by HUD anyway

True. Oh for a time machine!

A question was posed to me "what about a no cost program where if the customer pays off inside of 3 years and the agreement is that they must reimburse the bank for the fees paid". That actually came up in the discussion with the CFPB as an example of when a lender credit would be needed. Since not disclosing hinges on "legal obligation", in this case the customer does have a potential legal obligation and it seems the fees should be disclosed with the corresponding credit.

Interesting. I would think yes. It would not be a prepayment penalty that must be disclosed as long as the prepayment happens in the first 36 months. So otherwise, how would the customer know what the penalty might be???

The commentary describes this as: “A waived bona fide third-party charge imposed by the creditor if the consumer pays all of a covered transaction’s principal before the date on which the principal is due sooner than 36 months after consummation.”

Notice they use both the terms "waived" and “charge imposed by the creditor”. Which means to me, it is likely part of the legal obligation under 1026.17 until that 36th payment happens that the CFPB was so quick to pull out of their back pocket.

Definitely a legal obligation in these cases, which are pretty common based on my experience.

I will be the first one to say I welcome this interpretation, but what then is the purpose of the "specific" lender credit? My only guess could be we use this interpretation when the creditor always eats the fee (like in my previous credit report example) and the specific lender credit would only be used when there is a charge that the customer is responsible for paying that the creditor elects to pay for on a one off basis?

Even then though, the one-off "charge" that the bank is eating wouldn't be a "charge" that the consumer "will pay". I too am confused.

The discussion thus far has been about including those fees on the Loan Estimate (LE). The Closing Disclosure (CloD) has different requirements. On the CloD, you disclose all the costs, regardless of who pays them. If the creditor is picking up the credit report and appraisal costs, for example, each of those services will appear in Section B of the CloD, with the cost under the "Paid by Others" heading (optionally preceded by an L in parentheses to indicate the "other" is the lender). That's a specific lender credit.

Ok, John, that's making some sense to me....so the specific lender credit, by the CFPB's interpretation, only has relevance on the CloD. Thanks.

I see your point John and I guess I just don't understand why this interpretation would make a difference for most people. You already know these costs typically because they have to be calculated using the average charge (e.g., credit report). It is just as easy to go ahead and disclose it on the LE and have it carry forward to the CD. Where they really could have made a difference is if we wouldn't have to show this on either the LE or the CD- that is just wishful thinking.

Wishful thinking? Yes. Remember that the Closing Disclosure is even more inclusive of costs than the current HUD-1 and TILA disclosures. You are disclosing future costs in many cases, and even non-loan-related costs surrounding the transaction (a borrower-ordered inspection that isn't required for the loan, for example) and real estate agent fees.

John, if the fee is a cost of doing business for the bank and not disclosable to the customer, why do you feel it belongs on the closing disclosure? You don't disclose other costs like postage you spent on the customer. What would putting it on the closing disclosure do to tolerance calculations?

Thinking this through!

Our vendor is stating that the Seller's information (summaries of transaction) does not need to be completed if the title company is providing a CD to the seller. Is that accurate? As it is, we can't say a way in our LOS to exclude that information so its a bit moot, but just wondering what everyone else is hearing.

We do offer a home equity product where the appraisal, credit, flood search and other "Services You Cannot Shop For" are not charged to the borrower. Based on the thread here, I'm getting more comfortable with them not being reported on the LE under Section B.

I would make more sense because I have been having a terrible time testing my LOS when the appraisal is disclosed on the LE at $450 (because that's the highest appraiser we have), and the actual appraiser assigned charges us $375. When I make the adjustment to the closing disclosure, I'm getting a tolerance violation - even though its lower.

So, I sent the CFPB my own question, and of course I'm waiting for the telephone call back.

Someone also quoted above that they think these fees, if not on the loan estimate, should be disclosed on the Closing Disclosure. I'm not sure about that one, and have also included that in my CFPB request.

So what is the deal if you DO build the fees into the pricing or an origination fee? It sounds like you're saying you don't have to disclose any of the fees the lender is willing to absorb.

[The discussion thus far has been about including those fees on the Loan Estimate (LE). The Closing Disclosure (CloD) has different requirements. On the CloD, you disclose all the costs, regardless of who pays them. If the creditor is picking up the credit report and appraisal costs, for example, each of those services will appear in Section B of the CloD, with the cost under the "Paid by Others" heading (optionally preceded by an L in parentheses to indicate the "other" is the lender). That's a specific lender credit.]

FWIW, I talked to a CFPB attorney yesterday who told me what John said above. Not on LE, but must be on CD when lender pays costs.

I've fired off an email to the CFPB, not that whatever response I get should be treated any differently than what has already been provided but I'll share whatever that response is and the context. Stay tuned.

I expressed my frustration to the CFPB attorney that we are getting mixed opinions on various topics. She said they might do another webinar in the near future.

I have emailed them again, because in my lengthy call with two attorneys we specifically discussed, if a bank "absorbed costs as a cost of doing business" when would specific credits be used and they gave some examples...none of which were "for the costs you just absorbed as a cost of doing business."

I just did the same thing.

Looking forward to what they say. Our attorney is taking the stance that regardless of unofficial guidance, we wont know how a court will ultimately view this issue.

The entire discussion in the Official Comments about lender credits and how they are treated would be irrelevant if the disclosures only were required for charges the borrower is legally obligated to pay. A court will look first and primarily to the language of the regulation itself and then to the Official Comments and supplementary information issued with the rule. Informal interpretations issued by CFPB staff will play no role.

I've given up on any hope that we will see anything official from the Bureau before October 3. But I continue to hope that the Bureau-crats will realize that there is so much riding on the answers to these questions that they will eventually pull together something official in writing -- which, to earn the recognition of a court ought to be at least some clarifying official interpretations. That will, of course, take some time, because it would have to go the proposal, comment and final rule route via the Federal Register.

I think I have given up! :-)

It saves quite a few awkward steps to eliminate some of these little non-essential fees that the borrower never pays. To have to show them on the CloD in the end negates any helpfulness there could possibly be by not showing them on the LE.

To show them on the LE without an offsetting lender credit clouds the purpose behind 'shopping'.

In my shop these minor fees being discussed total less than $10 on a single applicant application. It costs more to administer showing these non-fees, but if I have to end up showing them on the CloD, then I may as well account for them all the way through the process. This makes no sense.

I 'get' including a borrower ordered pest inspection that they are paying for if you know about it...that's a direct part of the total cost...but to include something they WILL NOT PAY is and has always been ludicrous.

That was what was used in examples to me by the CFPB, like if the bank made a mistake and said "we will split that fee with you" or will pay the whole thing because the customer is annoyed.

My conversation with the CFPB was similar. In context of my conversation w/ the CFPB, "paid for by others" was to be utilized if the intention was that the borrower "will pay" but the bank decided prior to closing to pay for all or a portion the service. Maybe out of annoyance as KB states or the borrower negotiated it.

See that makes sense. Which is scary. The other has NEVER made sense.

This is so frustrating! We are a week away from the effective date and still trying to interpret their intentions. Who is working the 3rd and the 4th besides me?

I'm trying not to but the odds are not looking good.

Absolutelyfreakingnot planning to.

We are all on the same page...just need the CFPB to come out with some sort of interpretive guidance on this issue to make it official. If there was never any waffling on this issue I would be comfortable applying this interpretation, but as it stands I think everyone would agree we need something official before applying it to our process.

FWIW, I received a call back from the CFPB early this morning. The response was just like my first discussion with them on this topic: if the bank is absorbing fees as a cost of doing business, the bank does not need to disclose on the LE or CloD because the fees being absorbed are not part of the customer's legal obligation and will not be paid by the customer.

Further, the attorney said that if a bank wished to disclose on the CloD as a way to provide evidence to the borrower of actually paying those fees, a bank COULD but is not required to disclose on the CloD with the (L) for lender paid.

So then there is nothing stopping lenders from absorbing all the costs, charging a higher origination fee or higher price and disclosing nothing? How does that make it easy for a consumer to shop?

Not that any lenders would do that.

In my initial discussion with the CFPB they stated that, in their opinion, it provides what a borrower needs:

Bank A has x fee and x interest rate and x costs and

Banks B has y fee, y interest rate, and y costs.

The Law of Unintended Consequences strikes again.

KB - Thanks for the update! The confirmation response you rec'd matches what I had understood in my initial call with CFPB a month ago.

I also spoke with the CFPB about this issue and got the same response as KB.

Same here. No change, just the add on "if they want to disclose, do so with an (L)."

So disappointed. Just so that I would have my own documentation, I contacted the CFPB about this issue of whether or not we have to disclose the credit report fee on the Loan Estimate and Closing Disclosure if the bank is ALWAYS going to pay it. The response I got was, YES! Not what I wanted to hear. (It wasn't David Friend who called me back, it was someone named Ann - I didn't catch her last name). Seems it would be easy enough to just disclose it, but alas, we are still stuck in a situation where the company providing the report isn't charging a flat fee, so the charges change all the time - nor are they exactly double for a joint report vs. an individual report. We'd be using the average cost method previously, but this seemed like a way to make this whole thing much easier. Guess we are back to disclosing the average charge. :-\ She also wasn't able to answer my question about how doing that impacted the APR (saw that in a previous BOL discussion).

I am disappointed in my response from CFPB as well - based on this thread and the responses that others received regarding a truly no fee home equity loan and not listing the fees along with a lender credit on the LE - I sent an email and got a call back yesterday and she kept referring me to 1026.19 (e)(3) regarding Lender Credits - specific and general. She indicated that we had to disclose the fees along with the lender credit in Section J so she shot down my hopes of not having to disclose since they were not legally obligated to pay ANY fees in conjunction with the loan. Prior to contacting CFPB I reached out to our regulator and they told me to contact CFPB and then let them know what I found out...

@doodles - So the CFPB told you that you had to disclose on the LE? Or were they talking about the CD?

FWIW, the response we got from our regulator (FDIC Atlanta region) was that they expect to see lender paid items listed, too. We specifically asked about the credit report - ours are pretty much the same situation as CalifDreamin's - and explained about the opinions that had been received from the CFPB, but they basically said, "Too bad, so sad."

So we're back to putting the stupid credit report average charge on the disclosures. To make matters even more fun, if we identify it as a lender paid cost on the LE and then end up with a tolerance cure for whatever reason on the closing side, our software double counts it and we end up with a $5 error every single time. The only way we've found to make it NOT do that is to show the $5 as borrower paid on the LE (which it isn't) and then switch it to lender paid on the CloD.

Now our disclosures are now even more confusing than they were before over a stupid $5 fee that doesn't even really get charged.

1. Is your first paragraph referring to the LE or the CloD?

2. There is no way to show a cost as lender-paid on the LE. The LE assumes all costs shown are borrower costs. There is spot for lender credits, but it's risky to disclose them unless you realize you are committing to at least the amount of credits disclosed there.

1. In general. The response from the FDIC did not specify.

2. Our software allows individual fees to be tagged as lender paid on the LE (application side). It then shows the amount of that fee in the Lender Credits line, which is what causes the error on the closing side if there is a tolerance issue with something else. The vendor responded that the program is "working as designed" and suggested we stick to the double-work method of entering the fee as borrower-paid on the LE and then changing it to lender-paid on the CloD.

I realize that this seems like a small issue and is probably very straightforward and simple for some operations, but it is frustrating when a) training processors that they'll have to do this step twice for every loan; and b) training branch staff that they'll have to explain to every borrower that the cash to close on every LE is too high by at least $5.

The person from CFPB who called me today specifically stated that we needed to show the credit report fee on BOTH the Loan Estimate AND the Closing Disclosure even if this was always going to be lender paid, and then we needed to follow the specific credit instructions for the Closing Disclosure.

I did exactly the same thing CalifDreamin did for the same reasons last week. I also talked to Ann (the way she pronounced her name was hard to understand even when she spelled it. I wrote down Bom-eign, but I don't think I got it right.)

Serendipity - CFPB told me that I had to show the fees and the lender credit on both the LE and the CD. I was hopeful that they would confirm what others had posted - that because they were never going to be legally obligated to pay any fees there was no need to list on the LE but that was not the case with my contact with them yesterday. Not a happy camper here for sure.

It's absolutely crazy, too, because after all...aren't they wanting a TRUE picture for folks to shop with?

Unless I'm reading this thread totally wrong, some of you appear to have gotten a totally different answer from "Ann" then Kathleen and Jerrod got from whoever they talked to?
Maybe this is just Ann's interpretation.
Every time I've talked to the CFPB I've been told that what I'm getting is only that specific person's opinion and NOT the Bureau's stance.
Has anyone contacted the CFPB to let them know they appear to be talking out of both sides of their mouth on this one?

I surely hope that you told whomever you talked to from the CFPB that the information they were providing you was in direct conflict with information that has been provided to numerous other individuals that have asked the same question????

Can I pretend I didn't read these updates? I'd really like to stick to the opinion given to Jarod and KayBee.

Also can this topic be addressed at Triage next week. Would love to hear the Guru's hash it out on stage and maybe come to some sort of resolution, though until the Bureau formally addresses bankers there will be no true resolution.

Well, since I too contacted the Bureau and was told I did not have to disclose it, I will have to ask our regulator (OCC) what their stance is on this issue.

Hopefully they will provide something to work on.

We are certainly getting mixed messages in these contacts with the Bureau. It would be excellent if they were all using the same playbook.

RR Becca: If you include that cost on the LE and show a lender credit in the same amount, they should wash, and the Cash to Close calculation should be accurate (as much as any CTC on an LE can be accurate).

When you carry it to the CloD, you'll have to reassign it to the Paid by Others column by making it a lender paid item. That should match the lender credit from the LE so you aren't creating a cure problem.

You would think so, but apparently the software double-counts the lender credit from the LE when there is also a cure. I've been going back and forth with their techs about it since mid-September.

"Well, since I too contacted the Bureau and was told I did not have to disclose it, I will have to ask our regulator (OCC) what their stance is on this issue."

The OCC really has no say in the matter. Only the CFPB can interpret the regulations.

No, but I'm hoping to get something in writing from them regarding this issue. Something is better than nothing.

The CFPB does not commit anything to writing based on a phone call or an email. That is why they called you.

We are not talking about the CFPB anymore.

So you are talking about asking the OCC to commit to something in writing??

Maybe I'm crazy but if I have info from the CFPB, be it a phone call or reference to a phone call from a trusted source, I document it and move on. I certainly am not going to wave a red flag in front of my regulator asking them to clarify the info from the CFPB. If it comes up in an exam, I show my source and ask them to show me where the Reg says differently.

So therefor two different banks get to treat the same situation differently???

Just about asking them for guidance since they will be examining for TRID. I might not get much of a response though.



I had already documented it but now this thread resurfaced with conflicting information.

Question for those being told it must be disclosed: did you ask about when " the bank is absorbing the fees as a cost of doing business" which means that the customer has no legal obligation ( unless there is a clause requiring the bank to be reimbursed if loan is paid off early), or did you ask if there is a fee and the bank says, okay we will pay that.

Two different situations that will result in different answers.

I did. I was pretty detailed in my question, and explained that there appeared to be some conflicting language between reg and preamble, there were differing opinions out there, etc. Explained this would be a fee that the bank would ALWAYS be paying as a cost of doing business - applicants would never have to pay it - this would not be a one-off situation.

I emailed this morning, reminding them that I have spoken with at least three attorneys on this topic previously. I advised that apparently now an attorney named Ann is advising banks that fees must be disclosed when absorbed as a cost of doing business. I asked that they please provide consistent answers, not personal opinions, and that they please publish something as this confusion cannot continue. I also mentioned what the FDIC is apparently saying as further evidence of a need for published guidance.

I am sure that they will hop right on it as soon as my email is received.

Thank you, Kathleen. I sense you are getting as frustrated as the lenders are with the apparently inconsistent feedback from the Bureau. And I sympathize with lenders who will be dealing with examiners who may not have consistent views because of the inconsistent unofficial info from the CFPB and because examiners are famous for taking individual views on anything capable of being interpreted in more than one way.



From your lips to Rich Cordray's ear, Kaybee!

I too was very detailed - included text from the sections of the reg (1026.17 (c); 1026.37 (f)(2) and 1026.37 (f)(3) that talk about disclosing fees the customer will pay and legal obligation and told her (not Ann but someone named Yuritza? - no last name) that the customer will never pay the fees and not be legally obligated to pay them. I also included in my email that other bankers had received answers from CFPB attorneys that if we are disclosing a truly "free" loan then we don't have to disclose the fees on the LE and designate a Lender Credit since the borrower will not be legally obligated to pay those fees.

Great. I had been impressed with the consistency of the answers provided by the CFPB up to this point.

Well, at the Tennessee Bankers Compliance Conference last week, Calvin Hagins, Deputy Assistant Director for Originations, Office of Supervision Policy, CFPB, went through some written FAQs on the new rules. His answers were not written but when he reviewed the question "Under TRID, can we just absorb the fees as a cost of doing business and not disclose at all?" his answer was No.

There was no further clarification so I'm not sure his answer inferred "not disclose at all" meant no LE or no fees on the LE.

They have been doing this all along on this topic which is why I say take the conservative approach and disclose until we receive something official in writing from the CFPB.

Update - Just finished talking to the CFPB again, we received the same answer we dd two months ago. If the consumer will not have to pay for the settlement service, it’s not required to be disclosed. In this case it’s treated as an overhead expense. For example, a lender that does not charge for credit reports or appraisals would not be required to disclose these services. Caution, if a required service is not disclosed it cannot be added back at a later date.

If the consumer must pay the cost for a settlement service but will be provided a lender credit to offset some or all of the cost, the service must be itemized as well as the lender credit. For example, if a lender offers an interest rate that provides a lender credit to offset some or all of the charges required to be paid by the borrower, the lender credit and the cost of the services must be disclosed.

We also asked about the Closing Disclosure and the CFPB stated that if the charge is treated as an overhead expense as described above, it does not need to be disclosed on the Closing Disclosure.

Obviously, this is an area where there is some confusion and misinformation, at the end of the day you'll have to decide what's best for your organization based on the risks presented.

I think I get twisted up in terminology.

Is it only considered overhead if the bank will always pay for a certain cost? We always pay for the credit report, so that is overhead and I never have to put it on the LE or CD?

But what if the bank only sometimes pays for a certain cost? Does it have to show on the LE and CD on the loans for which the bank intends to pay? Joe applies for a loan and I know the only way I can get his business is if I don't make him pay for an appraisal but instead have the bank purchase the appraisal. This is known prior to issuing the LE. Do I have to show the appraisal on the LE and CD?

I 'like' to go back to "spirit and intent" when making these decisions. We had no choice with 2010 HUD because they were adamant fees that are typically associated with a loan be shown.

This is not helpful to the person doing the shopping if, in fact, a fee will not be charged for a service.

If you don't show it, of course you cannot go back and list it later - understood.

If the spirit and intent of TRID is to tell the whole truth and nothing but the truth, then showing a fee that won't BE a fee is not in keeping with that intent. If it's truly gives only the facts and Bank A shows a non-charged credit bureau fee/appraisal fee whatever, and Bank B shows for real charges for fee(s)...how is that helpful? It's not. The only accurate approach would be to only show those fees you are passing on to a borrower.

Now, if you normally charge certain fees, but agree in negotiations to pay all or a portion, then lender credits to offset make perfect sense...the bottom line still tells an accurate story...but to show a $5 fee that will never be charged to a borrower is just plain silly. (IMO)

For now, I'm siding with the majority of the responses from the Bureau...but I'd sure feel better if they would clarify this issue once and for all!

Bville, in your case, I believe disclose and show a credit would be the prudent way to handle that. The only time I completely eliminate a fee is when we don't charge employees a loan fee...it just doesn't go on there at all. We aren't paying it for them...it just doesn't exist. Therefore it just doesn't belong there.

Has anyone heard anything new on this topic? Any word if our friend Ann has been set straight to our way of thinking? Or have we all just acquiesced to over disclosing on the LE and clearing it all with credits on the CD to C-our-collective-As?

Any updates from the Feds answering this confusion?

Thanks.

You only show what will actually apply to a loan. So, if you obtain a credit report but don't charge for those reports, you don't show that fee.

I deal with this issue daily. We have two divisions one is an online division where we charge no fees. Mostly refinances. Often times that include prepaids and escrows. We structure the deal so the borrower does not have to bring any money to closing. We also give escrow advances (net escrows) to offset escrow accounts on refinances.

The ever-recurring issue is that we overquote credits all the time because something changes and the escrows or prepaids go down. Then the issue becomes what do we do? We cant give credits that exceed closing costs. So usually, we reduce the lender credit to match closing costs then issue a cost to cure for the reduction in lender credit. But when it comes to IRRRLs or other no cash out allowed transactions the only other option is to do a principal reduction because the change always happens after we are already at CD so we run into black hole issues.

I have a lot of creative ideas on how to combat these issues I won't go in to now. I would love to do what OP said in the original post but we can't seem to sell that to our customers. "Oh trust me we will give you credit for it later", they want to see it on paper. The only real problem I see, and it's a big one, is the one everyone already cited with reflecting the legal terms of the transaction and best information reasonably available at the time.

That being said, is there consumer harm if you show them a worst case disclosure and later deliver best case scenario? Common sense says doing this way would be fine. It's a risk I would be willing to take anyway. You don't see consumer protections agencies going after lenders for issues like this. I haven't anyway.