VIDEO: What is a Lender Credit
In this Compliance Clip (video), Adam discusses what a lender credit is for purposes of the TRID rule. In particular, Adam specifies items that are considered lender credits and gives examples of payments that not are considered a lender credit. In addition, Adam briefly describes the difference between a specific and a general lender credit.
In another video, Adam talked about how to disclose a fee, whether it's a specific lender credit, or a general lender credit.
Video Transcript
The following is a transcript of this video:
This Compliance Clip is going to discuss what is a lender credit. The question we have is this: What is a lender credit for purposes of the TRID rule?
The answer to this, of course, is going to come from the Truth in Lending - RESPA Integrated Disclosure, otherwise known as TRID, Frequently Asked Question No. 1, under the Lender Credits section. For purposes of the TRID rule, lender credits include payments such as credits, rebates and reimbursements that a creditor provides to a consumer to offset closing costs that the consumer will pay as part of the mortgage loan transaction. That's the first part. But lender credits also include premiums in the form of cash that a creditor provides to a consumer in exchange for specific acts, such as accepting a specific interest rate, or as an incentive such as to attract consumers away from competing creditors. That is what a lender credit is.
Now, amounts the consumer or seller pays themselves are not lender credits for purposes of the TRID rule. For example, amounts that a creditor collects from a consumer, holds for a period of time, and then applies to cover closing costs are not considered lender credits because, in these cases, the creditor is not providing anything to the consumer. So, there is no lender credit in that situation. Also, similarly, amounts that a creditor collects from a consumer, then holds for a period of time, and then returns to the consumer later are not lender credits because, in substance, the funds are provided by the consumer rather than the creditor. What we're talking about is when the creditor is giving something to the consumer.
In talking about lender credits, there is a difference between specific and general lender credits. Specific lender credits go towards a specific fee like paying for an appraisal or paying for a credit report or paying some form of processing fee or the origination fee. Something like that. A lender credit towards specific items is considered a specific lender credit. On the other hand, a general lender credit would just be a general $50 to go towards closing costs or $300 to go towards closing costs. There is a difference there. Now, if you are paying a fee and want to figure out how to put that on your loan estimate and closing disclosure, I'm not going to cover that in this video, but I have a whole another video where I discuss that exact topic. The link to that video is in the comments below this video on my website, compliancecohort.com. So take a look at that video. The video is on our website, compliancecohort.com, the link is below. So take a look at that. That's a whole ‘nother video where I talk about how to disclose a fee, whether it's a specific lender credit, or a general lender credit.
That's all I have for this Compliance Clip.