Holdback money questions

Borrowers requested $100,000 dollars loan - They recently started the floor repairs and because of the floors needed to be repaired, the appraisal came back low. Bank approved $100,000 but with a condition that they hold back $5,000 of the loan proceeds (putting the money in an escrow account) until the borrowers complete the floor repairs and order another appraisal. Once the appraisal comes back with a higher value, they will get the rest of the loan proceeds ($5,000) after closing.

Would you consider the $5,000 as a fee? If so, where would you disclose on LE and CD? If we did not disclose as a fee on the original LE, would you have done a revised LE within 3 days of the change?

Or do you consider the $5,000 as a deposit since it is coming out of the loan proceeds? If so, would you do a revised LE to show the $5,000 as the deposit if we did not disclose on the original LE?

Thanks!

It's not a fee and I don't see where it changed the ultimate loan amount. I'm not sure what the real issue is?

We do the LEs and CDs for another bank and they are telling us that we should have shown it as a fee and that we need to show a cure of $5,000 because in their mind, it's for repair works but in our mind, it's from the loan proceeds that is being held in an account until the borrowers complete the repair works.

On the original LE, we did not disclose the $5,000 anywhere but we issued an revised LE and disclosed the $5,000 as the deposit (as a negative number) outside the three days timeframe (they are saying it should have been a fee and since we revised after 3 days timeframe, they believe there should be a cure) but in my opinion, it's not a fee and has nothing to do with the tolerances so there should be no cure.

I agree it's not a fee.
Try using the logic that it's not being paid to anyone...except the borrower when the completion report comes in.
Cure...for what? They decided to hold back proceeds. That's not something you would cure for whether you disclosed on a late LE or didn't show it till the CD.

I agree. It's an accounting issue, not a true disclosure issue.

Thanks - We are going to try and see if we can get the Compliance Officer understand this.

Thanks again!

It's not a fee per se, but is often shown on the LE/CD in Section H. There are a couple of other ways to show it as well. It is similar to how to treat the disbursement of draw funds on a construction loan.