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With rates decreasing we have a borrower who wanted to renegotiate their rate on a secondary market loan. The rate on the loan is already locked at 3.25% with us (the bank) making 1.535%. The loan officer reached out to the investor to see if we could adjust the rate and the investor agreed to lower the rate to 3.125% and change us (the bank) a $154.00 fee to do so which will come from our 1.535% we were originally going to make.
Our question is can this charge be passed on to the borrower? If so, how would it be disclosed because I do not consider this fee to be a point to buy down the rate. We may get more requests so we want to be sure we are disclosing this properly.
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Mary Frances,
Thanks for the question. I agree – you want to get it right. We’ll discuss this and get back to you asap.
Thanks for your patience!Mary Francis,
What a very timely question. With rates dropping many may face this issue.
The charge can be passed to the borrower. The borrow requests the change. You agree, subject to the condition that they pay the fee. Everything is detailed in the note or modification agreement. If you use a new note, the transaction is a refinance and disclosures are required. If the existing note is modified, no disclosures are required.
If the transaction is a refinance subject to TRID, the fee could be disclosed on the Loan Estimate and on the Closing Disclosure in one of two ways. First, if the fee is retained by your bank it would be disclosed as discount points in section A, since the fee is paid to the creditor to reduce the rate that otherwise would have been imposed. The second option is to disclose the fee as a Service You Can Not Shop For in Section B, since the fee is actually paid to a third party.
Your question indicates that the fee is ultimately paid to the investor, which makes the second option most responsive to your question.
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