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Lender Credits At Closing For A TRID Loan

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Question: 
How should lender credits be handled at closing for ​a ​TRID loan? Do we have to still issue​ a​ "Good News" letter? Can we quit issuing checks and use credit towards cash at closing?
Answer: 

here are lender credits that a lender provides as a pricing incentive and there are lender credits that a lender provides as a "cure" for a tolerance violation and finally, there are lender credits given to avoid a tolerance violation.

Lender credits on the closing disclosure can be either specific credits (indicated by putting the cost for a service in the Paid by Others column on page 2 and optionally tagging it with "(L)"), or general credits (indicated by the dollar value for the credit placed on the Lender Credit line in Section J on page 2 and in the Closing Costs summary statement in the Costs at Closing table on page 1. Or they can be a combination of specific and general credits.

If the lender finds at closing that there is a tolerance violation when comparing the actual costs and those on the loan estimate, the lender can choose to put the actual cost in the Borrower-Paid column on page 2 and provide the cure payment by adding to the lender credit amount in section J. This will also require a statement in the Calculating Cash to Close table that the actual costs represent an increase beyond the "legal limit" of $X and a similar statement added to the description of the Lender Credit in section J.

Alternatively, the lender could list in the Paid by Others column (optionally tagged "(L)") the amount by which the cost for the service exceeded the tolerance limit, and the balance of the service's cost in the Borrower-Paid column. That brings the costs paid by the borrower to within tolerance and there's no longer a need for the "exceeds legal limit" statements or the increase in the general Lender Credit amount in section J. The net result is the same: the bank "eats" the excess cost.

If the "Good News" letter was something like "The actual costs exceeded the estimates, but here's the good news: We're enclosing a check for the difference," that's no longer required. You take care of the cure on the Closing Disclosure and pay for it as part of the settlement debits and credits.

However, if you identify a tolerance violation AFTER the closing, you will have to issue a check, and you'll probably include a cover letter to explain the check and the revised closing disclosure that will accompany it.

First published on 11/27/2016

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