[penncm]

We have a customer whose credit we pulled. The loan was approved but at a higher rate because of the credit score. There was an item on the credit report that the customer was able to have removed and he wanted to know if the score was updated due to this item. Our Mortgage department is refusing to pull another credit report due to the cost. They informed the customer that they can pull the report and if the item was removed and the score is higher, we will then pull another report.

The loan originator asked if she could pay for the credit report. In the past, some of our loan originators have paid for the customer’s appraisal. It is within their contracts that the appraisal fee can then be deducted from their pay.

Is there any regulation that would prohibit a loan originator from paying for the customer’s credit report or for an appraisal?

[JGo9]

Penncm,

I have to admit that I didn’t see this question coming. I’ve never ran across this issue before, so maybe Jack can give us his insight on the topic.

Right off the top of my head, I can’t think of anything that would explicitly prevent them from doing this, thought I think it is somewhat odd. Typically in this situation, the financial institution or the applicant would pay for the extra fee, not a third-party. You mentioned your Mortgage department so I’m going to assume that you are dealing with a consumer real estate loan. You’ll need to be sure to properly disclose how that fee was paid on your HUD. I’m would think you would use POC but I’m not sure what letter you would use to indicate it was paid by a third party. Typically, you would use B for borrower, S for seller, and L for lender.

Probably not so much in this instance with the credit report, but when this is occurring with your appraisals, be cautious about how this could potentially impact Section 8 with kick-backs. I’m not saying that it would necessarily be a kick-back (section 8 violation), but that you should be very mindful of that topic, especially in these cases.

Lets see if Jack has any additional input…

[jholzknecht]

I agree with jGo9, this is a bit unusual. Regarding completion of the HUD-1, it appears that the fee should be reflected as POC-L

I have no expertise in IRS reporting requirements, but there may be issues there. Does this reduce reportable income?

There are probably other issues beyond those mentioned here or in JGo9’s post. we would love to hear from other on this.

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