Part of your questions is easy to answer, part is not. The easy part – you should use the language from section A of the model Affiliated Business Arrangement Disclosure. Section B is used only when the service provider is an attorney, credit reporting arrangement or real estate appraiser.
The fee side of your question is a little tougher. Is the processing fee received by your bank a separate charge to the borrower or is it paid to your bank from your sister bank’s revenue?
For purposes of RESPA your processing fee should be included in the total of Block 1- “our origination charge” on the GFE and on Line 801 of the HUD-1. This is true for either of your two loan scenarios.
For purposes of TIL, if the borrower pays a separate processing charge, the charge may may be excluded from the finance charge under section 1026,4(c)(7a0 of the regulation, which provides that certain fees, such as document preparation fees, may be excluded from the finance charge, if certain conditions are met. Charges for underwriting would be a finance charge. If may be easier to include the full amount of the fee is the finance charge.
For purposes of TIL, if the fee paid to your bank is paid from your sister bank’s revenue, rather than as a separate fee imposed on the borrower, then the charge is already included in the finance charge.
For TIL the answers about disclosure of the fees are the same for either of your loan scenarios.
In the first loan scenario, you may have an issue in that the borrower cannot be required to use the services of your bank, as indicated in the model disclosure in Appendix D.