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Lender Credits on California Loans

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Question: 
This question pertains to lender credits on California loans. We have an SB2 charge from title on all refi's which is always estimated at the max fee of $225.00. This doesn't get updated until after closing when majority of the time it is lowered to $75.00. If the lender discloses a credit for this fee upfront at $225, can the lender credit be reduced if/when the fee is reduced at closing (after funding)?
Answer: 

You have to start by looking at why the bank always estimates the SB2 charge to be $225 when most of the time it ends up being $75. It's hard to demonstrate that the bank is making the estimate in good faith based on those facts. And if the $225 estimate can't be demonstrated to have been made in good faith, then there is no way that reducing the offsetting lender credit is going to be acceptable, because the lender credit is a negative consumer cost and reducing it is an increase to the consumer for that cost, and the original estimated lender credit can't be documented as being made in good faith.

A better way to proceed, frankly, if the bank's intent is to cover the SB2 charge consistently, is to simply not include it as a cost on the loan estimate (since it won't be paid by the consumer), and, of course, to omit the lender credit, too. Then, when you issue the closing disclosure, you simply show the correct SB2 fee in the paid by others column, tagged to show it's paid by the lender (not as a general lender credit).

First published on 05/26/2019

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