We pay for various third party fees on the borrower's behalf for our equity loans. We disclose the fees on the LE and offset them by disclosing a lender credit in Section J of the equal to the amount of those fees.

If we also pay for the recording fees, should we disclose them in the same manner? It seems that we should, but 1026.37(g)(1) says we should not disclose them if we don't "charge" them to the borrower.

The term "charge" is not defined in the regulation. If we pay for it on the borrower's behalf with a lender credit are we "charging" the borrower?

Here's the section from the Reg:

1. Taxes and other government fees.
Under the subheading “Taxes and Other Government Fees,” the amounts to be paid to State and local governments for taxes and other government fees, and the subtotal of all such amounts, as follows:
i. On the first line, the sum of all recording fees and other government fees and taxes, except for transfer taxes paid by the consumer and disclosed pursuant to paragraph (g)(1)(ii) of this section, labeled “Recording Fees and Other Taxes.”
ii. On the second line, the sum of all transfer taxes paid by the consumer, labeled “Transfer Taxes.”
iii. If an amount required to be disclosed by this paragraph (g)(1) is not charged to the consumer, the amount disclosed on the applicable line required by this paragraph (g)(1) must be blank.


Thanks,

Larry

My question probably wasn't very clear, so I'll ask it in a different way. For those of you who have equity loans where the borrower just pays a single origination charge and you pay the third party fees, do you disclose the recording fee on the LE in the same manner that you disclose other third party fees, or do you leave it off the LE since it's not being paid directly by the borrower?

Thanks,

Larry

Yes, disclose on the LE and then show a lender credit for the amount.

12 CFR 1026.19(e)(3)(i) General rule. An estimated closing cost disclosed pursuant to paragraph (e) of this section is in good faith if the charge paid by or imposed on the consumer does not exceed the amount originally disclosed under paragraph (e)(1)(i) of this section, except as otherwise provided in paragraphs (e)(3)(ii) through (iv) of this section.

CFPB preamble to KBYO Final Rule, 78 Fed. Reg. 79825: “The Bureau does not believe that it would be appropriate to exempt ‘‘no cost’’ loans from § 1026.19(e)(3)(i). ‘‘No cost’’ loans must comply with the current limitations on settlement charge increases set forth in Regulation X. Additionally, the text of § 1026.19(e)(3)(i) indicates that the general rule applies to both charges that are paid by the consumer, and charges that are imposed on the consumer. In a ‘‘no cost’’ loan transaction, closing costs may not be paid by the consumer because they are financed by the creditor, but are nonetheless imposed on the consumer. The Bureau also believes that consumers should receive reliable cost estimates for ‘‘no cost’’ loans so the consumer could use the Loan Estimate to compare such loans, where the closing costs are financed, with loans that do not finance closing costs.”

It all depends on how you want to define a "no-cost" loan and what you think this statement means:

In a ‘‘no cost’’ loan transaction, closing costs may not be paid by the consumer because they are financed by the creditor, but are nonetheless imposed on the consumer.

That was just part of the language in the cut/paste. I wasn't trying to equate it with a no cost loan. I was just trying to make the point that those type of fees should be listed on the LE even if the creditor is paying them.

Thanks. I agree that based on section .19(e) we should disclose the recording fee on the LE like we do the other third party fees and disclose a lender credit to show that we're paying those fees for the consumer.

But section .37(g)(1), which I pasted above says that if an amount required to be disclosed by that section is not "charged" to the consumer then that line on the LE should be left blank. This appears to be in direct conflict with section .19(e) unless "not charged to the consumer" in section .37(g)(1) means something different from "imposed on" the consumer in section .19(e)

Thanks,

Larry

1026.17(c) Basis of disclosures and use of estimates. (1) The disclosures shall reflect the terms of the legal obligation between the parties.

If the customer is not going to be legally responsible for the fees........................... then my argument is what are they doing on the LE? Regulation Z is not the old RESPA.

But everyone has their own opinion on this issue.

I think it helps the consumer understand the value of the lender credit, as the preamble commentary mentions.

To make sure I understand, does that mean if the lender structures the loan product so that they pay the recording fees and other third party fees then they shouldn't disclose any of them on the LE because according to .17(e) the borrower is not legally obligated to pay them and because according to .19(e) they're not imposed on the borrower?

And of course, the CFPB comment that Randy carved out earlier suggests pretty clearly that the Bureau agrees with the old adage, "There's no such thing as a 'free' lunch." The consumer pays those costs via the interest rate, just as the consumer pays for the "free" samples at the tasting stations at the super market.

Justin called out that section from the preamble, and I've always taken the approach that we're required to disclose all those fees and show a lender credit for them consistent with that cite. But I thought Randy was proposing that we shouldn't disclose them because the borrower wasn't obligated to pay them and the lender didn't impose them on the borrower. Maybe I misunderstood?

Two differing approaches to the issue. Take your pick based on what you will be comfortable defending should a regulator question it.

I included that and asked for clarification from the CFPB in my comment letter on the TRID proposal. But Docs is correct. You need to decide on what it means.

The Bureau is encouraged to clarify what is specifically meant in the preamble to the final regulation. The Bureau stated: “The Bureau does not believe that it would be appropriate to exempt “no cost” loans from § 1026.19(e)(3)(i). “No cost” loans must comply with the current limitations on settlement charge increases set forth in Regulation X. Additionally, the text of § 1026.19(e)(3)(i) indicates that the general rule applies to both charges that are paid by the consumer, and charges that are imposed on the consumer. In a “no cost” loan transaction, closing costs may not be paid by the consumer because they are financed by the creditor, but are nonetheless imposed on the consumer. The Bureau also believes that consumers should receive reliable cost estimates for “no cost” loans so the consumer could use the Loan Estimate to compare such loans, where the closing costs are financed, with loans that do not finance closing costs.” This paragraph has led to much confusion and consternation within the industry.

The industry has totally misinterpreted this section of the regulation based on the past stance taken by HUD on the disclosure of loans costs and lender credits. HUD previously opined in the RESPA FAQ last updated on April 02, 2010 that “Where a “no-cost” loan encompasses the loan origination charge and some or all third party fees, a credit should be listed in Block 2 of the GFE to offset all fees encompassed in the “no-cost” loan resulting in a negative number in Block A to cover the intended third party fees, listed in Blocks 3 thru 11 as appropriate.” The approach that HUD took on the old GFE and the passage from the Bureau in the above paragraph appear to be addressing two very different views. The Bureau is focusing on where the consumer is legally responsible for the settlement charges, but the loan amount includes the settlement charges resulting in the consumer not having to separately pay the closing costs at the time of consummation due to the fact that the loan amount is sufficient to cover these charges.

17(c)(1)-1 requires that “The disclosures shall reflect the terms to which the consumer and creditor are legally bound as of the outset of the transaction.” If the lender does not intend to hold the consumer legally responsible for certain settlement charges regardless of the ultimate costs of the settlement service, such as a credit report, an appraisal or other settlement charge, some in the industry and some investors believe that the charges must still be shown as borrower paid costs and offset by either a specific or general lender credit. This does not appear to be the original intent of the bureau and the disclosure of the GFE under the HUD rules did not contain the same “legal obligation” requirement as found in Regulation Z. If the creditor is not going to hold the borrower legally responsible for the payment of a specific settlement charge, the charge should not appear on the Loan Estimate. Placing such a settlement charge on the Loan Estimate and requiring the creditor to also offset this charge with a specific or general lender credit could very well penalize the creditor via the cure provisions, if this charge varies from the original estimate. Creditors being subjected to the cure provisions under these circumstances continue to occur, even when the lender never intended for the consumer to pay for the settlement charge from the on-set of the transaction, regardless of the estimated amount when the Loan Estimate was issued. The Bureau is highly encouraged to address this issue more directly in additional guidance.

Part of the preamble to the TRID proposal that Randy quoted above states that,

"In a “no cost” loan transaction, closing costs may not be paid by the consumer because they are financed by the creditor, but are nonetheless imposed on the consumer."

By saying that the costs are "financed by the creditor" is the CFPB only referring to loans where these charges are added to the principal loan amount, or are they just referring to the idea that the lender is paying for them by issuing a credit to the borrower?

RESPA 2010 never referred to the fees being "financed" or added to the principal amount, so I always assumed that meant any charges whether they were added to the principal balance and paid from loan proceeds or kept separate from the loan amount.

Thanks,

Larry

By saying that the costs are "financed by the creditor" is the CFPB only referring to loans where these charges are added to the principal loan amount, or are they just referring to the idea that the lender is paying for them by issuing a credit to the borrower?

That is the $25,000 question.

I think the Bureau's point is that even if the lender is paying the charge(s), it passes those charges to the borrower in the interest charged on the loan. That's a little naive, because the lender-paid costs are passed along to the lender's customers as a group, not necessarily to the particular borrower who receive the benefit of the bank's "largesse." The Consumer always pays.