VIDEO: Paying for a Fee on the LE & CD
In this Compliance Clip (video), Adam discusses how a creditor discloses lender credits if the creditor provides a credit rebate or reimbursement to offset specific closing costs charged to the consumer. This is a TRID topic.
Video Transcript
The following is transcript of this video:
This Compliance Clip is going to talk about paying for a fee on the Loan Estimate and Closing Disclosure. This is a TRID topic. The question we have is this: how does a creditor disclose lender credits if the creditor provides a credit rebate or reimbursement to offset specific closing costs charged to the consumer?
What we're talking about here is a specific closing cost, maybe a cost related to the appraisal or the credit report. We're not talking about a general cost, like $50 off of your closing costs. That would be a general lender credit. What we're talking about is a specific lender credit to go towards a specific fee or rebate or something like that. That's the question.
The answer, of course, comes from regulation Z and it's really a TRID piece, but we can also take a look at an easy citation rather than diving into the deep parts of TRID. We can look at the Frequently Asked Questions from the CFPB, Frequently Asked Question number 8 under Lender Credits.
First, it's important for you to understand that you are providing that specific lender credit. As I mentioned just a second ago, specific lender credit goes for a specific fee. So $50 off of your closing costs is going to be a general credit, not a specific credit, but maybe a $20 off your appraisal, or we're going to pay for your appraisal or pay for your credit report. Those are specific lender credits because they go towards a specific fee.
The credit is handled slightly differently for the Loan Estimate and the Closing Disclosure. So there's a little bit different requirements for this, mainly because the Loan Estimate does not allow a place to discuss specific credits. You have to actually list it sort of as a general credit.
Let's just read what we have here. For the Loan Estimate, the creditor must disclose each of the closing costs charged to the consumer in the Loan Costs and Other Costs table, as applicable. The creditor must also include a corresponding total amount, which will be listed as a negative number, of course, and the amount disclosed as “Lender Credits” in section J: Total Closing Costs on page 2 and in the amount disclosed as “Lender Credits” in the Estimated Closing Costs portion of the Costs at Closing table on the bottom of page 1 of the Loan Estimate. That's how you handle the Loan Estimate. Again, there's not a specific lender credit position for you to put this on the loan estimates so you have to do it more as a general credit, even though it's not a general credit. So it's just one spot for all general and specific credits
The Closing Disclosure, on the other hand, you do break this out because for the Closing Disclosure, you as a creditor must disclose the closing costs in the Loan Costs or Other Costs table, as applicable, with each closing cost in the “Paid by Others” column for the row that discloses the specific closing cost to which the lender credit is attributable. So on the Closing Disclosure, you do list a specific lender credit relating to the line on which the fee is charged. If it's a credit report, you have your credit on that line. If it's appraisal, you have your credit on that line.
That's how it works on the Loan Estimate and the Closing Disclosure. That's all I have for you on this Compliance Clip.