[GwenM]

What is the correct/legal way to disclose a non-specific lender’s credit if the estimated closing costs and pre-paid fees come in lower than originally anticipated? The lender’s credit amount is based the loan rate and is quoted as on lump sum. It is not tied to specific fees. For example, the lender’s credit is $1,000 but the fees end up being only $800. I know we can’t lower the lender’s credit but can the $200 be used as a principal reduction? If so, how does this need to be disclosed on the CD? Is it acceptable to show $1,000 Lender Credits in section J. of CD and a $200 principal reduction om page 3 under payoffs and payments?

Topic

[kmeade]

Following!

[GwenM]

Hello, Just following up to be sure you hadn’t missed or overlooked this question sent 03.15.21.

Thanks!

[afaust]

Section 1026.38(h)(3) states that general lender credit should be disclosed on the appropriate line in Section J of the Closing Disclosure. There are no instructions to show part of the credit as a principal reduction.

The lender’s credit can be revised in certain situations (Section 1026.19(e)(iv)(D), such as when the rate was not locked at the time the loan estimate was provided, but then is later locked.

[GwenM]

Hi Amy,

In your opinion, do you agree that showing the surplus of a lump-sum lender credit as a principal reduction on page 3 is compliant? The CD would show $1,000 lenders credit in section J on page 2 and a $200 principal reduction to the bank on page 3 under section K. The regulation does not allow the lender credits to be lowered so the surplus is given to the borrower by paying it toward the principal balance. Is this okay?

Commentary to 1026.19(e)(3)(i)-5. Lender credits. The disclosure of “lender credits,” as identified in § 1026.37(g)(6)(ii), is required by § 1026.19(e)(1)(i). “Lender credits,” as identified in § 1026.37(g)(6)(ii), represents the sum of non-specific lender credits and specific lender credits. Non-specific lender credits are generalized payments from the creditor to the consumer that do not pay for a particular fee on the disclosures provided pursuant to § 1026.19(e)(1). Specific lender credits are specific payments, such as a credit, rebate, or reimbursement, from a creditor to the consumer to pay for a specific fee. Non-specific lender credits and specific lender credits are negative charges to the consumer. The actual total amount of lender credits, whether specific or nonspecific, provided by the creditor that is less than the estimated “lender credits” identified in § 1026.37(g)(6)(ii) and disclosed pursuant to § 1026.19(e) is an increased charge to the consumer for purposes of determining good faith under § 1026.19(e)(3)(i). For example, if the creditor discloses a $750 estimate for “lender credits” pursuant to § 1026.19(e), but only $500 of lender credits is actually provided to the consumer, the creditor has not complied with § 1026.19(e)(3)(i) because the actual amount of lender credits provided is less than the estimated “lender credits” disclosed pursuant to § 1026.19(e), and is therefore, an increased charge to the consumer for purposes of determining good faith under § 1026.19(e)(3)(i). However, if the creditor discloses a $750 estimate for “lender credits” identified in § 1026.37(g)(6)(ii) to cover the cost of a $750 appraisal fee, and the appraisal fee subsequently increases by $150, and the creditor increases the amount of the lender credit by $150 to pay for the increase, the credit is not being revised in a way that violates the requirements of § 1026.19(e)(3)(i) because, although the credit increased from the amount disclosed, the amount paid by the consumer did not. However, if the creditor discloses a $750 estimate for “lender credits” to cover the cost of a $750 appraisal fee, but subsequently reduces the credit by $50 because the appraisal fee decreased by $50, then the requirements of § 1026.19(e)(3)(i) have been violated because, although the amount of the appraisal fee decreased, the amount of the lender credit decreased. See also § 1026.19(e)(3)(iv)(D) and comment 19(e)(3)(iv)(D)-1 for a discussion of lender credits in the context of interest rate dependent charges.

Thanks!
Gwen

[Author]

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