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#2277745 - 11/08/22 11:59 PM
Re: Disclosing 2/1 Builder Buydown
Nico
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10K Club
Joined: Jul 2001
Posts: 85,391
Galveston, TX
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So, in a situation where the buydown is not part of the credit contract but where the lender has a separate agreement with the seller for the seller to pay the cost of the buydown, would the lender be able to exclude the buydown cost from the Points and Fees? . OK - This is where you are jumping off the rails. The agreement for the seller to subsidize the buyer's payments is not between the seller and the lender. It is between the seller and the buyer. The monies to subsidize the payments are placed in a separate escrow account and the only involvement of the lender would be to agree to service the loan that included such an escrow account. If for some reason there is no money in the escrow account, the legal obligation to make a full payment remains with the borrower. There are no finance charges involved here to even worry about whether the buydown funds are seller points or not. It might help to read an actual buydown agreement: https://phlcorrespondent.com/wp-content/uploads/2017/11/2-1-Buydown-Agreement-Sample.pdfPay very close attention to the last paragraph.
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#2277779 - 11/09/22 07:30 PM
Re: Disclosing 2/1 Builder Buydown
Wonderofitall
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New Poster
Joined: Dec 2017
Posts: 13
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Another way to look at it, Comment 17(c)(1)-3.ii applies, therefore your LE, CD, and Note are all reflecting the same FULL interest rate at the FULL term, same as any loan. Because you've already done your job outlining those full terms to the consumer, you wouldn't reflect it as a further finance charge (or exclude). It's simply an escrow set up between buyer and seller, overseen by the lender.
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#2277808 - 11/10/22 05:03 PM
Re: Disclosing 2/1 Builder Buydown
Wonderofitall
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10K Club
Joined: Aug 2002
Posts: 47,875
Bloomington, IN
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The following is taken from the sample agreement Randy provided:
In order to comply with FNMA/FHLMC guidelines and protect the availability of the buydown funds, these funds shall be held in an escrow account with a financial institution which is not the original or servicing mortgagee and is supervised by a Federal or State agency.
Since we are not currently involved with these buydowns I haven't taken the time to look up those referenced guidelines but if such guidelines exist then from reading the above it appears the lender cannot service the escrow account if they sell to Freddie or Fannie.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#2277816 - 11/10/22 05:59 PM
Re: Disclosing 2/1 Builder Buydown
Wonderofitall
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10K Club
Joined: Jul 2001
Posts: 85,391
Galveston, TX
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I actually do not see that as a current requirement. Buydown accounts must be established and fully funded by the time the lender submits the mortgage to Fannie Mae for purchase or securitization. Funds for buydown accounts must be deposited into custodial bank accounts. Note: Buydown funds cannot be included in accounts with the lender’s other corporate funds. https://selling-guide.fanniemae.com...ry-Interest-Rate-Buydowns-07-29-2014.htm
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#2278094 - 11/21/22 09:23 PM
Re: Disclosing 2/1 Builder Buydown
Nico
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Diamond Poster
Joined: Oct 2015
Posts: 1,671
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Let me rephrase this (hopefully) more succinctly, leaving out placement on the LE/CD. The reason I'm asking is we are getting some interest in a 3-2-1 buydown paid by the seller. This fee would generally create a non-QM loan unless the cost is able to be excluded as Seller's Points as defined in 1026.4(c)(5). My question is, is it possible to exclude the buydown fee as seller's points?
Reading 1026.4(c)(5), if the lender and the seller had a contract between them (NOT the credit contract, i.e. Note) designating any cost to be paid by the seller, then this cost would be designated "Seller's Points" and would be excluded from the APR, the QM Points and Fees test, and the LE/CD entirely since the borrower is not obligated to the cost.
So, in a situation where the buydown is not part of the credit contract but where the lender has a separate agreement with the seller for the seller to pay the cost of the buydown, would the lender be able to exclude the buydown cost from the Points and Fees?
In the section of the comments to 1026.17(c)(1)3-i regarding 3rd party buydowns reflected in the credit contract, it acknowledges that when the terms of the buydown are reflected in the credit contract and the terms state that the seller is paying the cost, then that cost constitutes seller's points. However, it does not reference a situation in which the terms of the buydown are not reflected in the credit contract, but where the lender has a separate agreement with the seller to pay the cost, thus also making them seller's points under 1026.4(c)(5). Is the buydown cost then only considered Seller's Points if the terms of the buydown are reflected in the credit contract?
I appreciate all of your insight very much - I learn so much from you all and find your expertise invaluable. Yes, as RL basically noted, if the buydown is not reflected in the credit agreement, then you just don't include it as any kind of fee at all. Therefore, it will not make its way to the calculations you mentioned. It should be a big nothing burger in your system.
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#2278097 - 11/21/22 09:32 PM
Re: Disclosing 2/1 Builder Buydown
John Burnett
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Diamond Poster
Joined: Oct 2015
Posts: 1,671
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The bank wants to be out of the legal loop between the buyer and seller. Buyer and seller have their own side written agreement that seller will provide the buyer funds to be held in escrow for the buyer to use to augment the buyer's payment on the loan contract. The seller payment to the buyer for this purpose doesn't show up at all in the lender's disclosures to the buyer because the buyer will be responsible for making the full contractual periodic payments at the full rate on the loan. The seller payment is not a seller credit to the buyer toward closing costs, so don't even think about listing it as a seller credit.
Buyer and seller agree between them how much each payment during the buydown period needs to be subsidized, and the funds are either put into escrow up front or on some agreed-upon schedule that conforms to their agreement with one another. If the seller fails to satisfy the agreement, the buyer has to continue paying the loan as per the mortgage loan agreement with the bank, and may have to take legal action against the seller to force the seller to pay up. The bank has no involvement between the buyer and seller. @John, your statement about "don't even think of listing it as a seller credit" seems to contradict the OI. You may want to check that. ii. If the third-party buydown is not reflected in the credit contract between the consumer and the bank and the consumer is legally bound to the 15% rate from the outset, the disclosure of the finance charge and other disclosures affected by it given by the bank must not reflect the seller buydown in any way. For example, the annual percentage rate and disclosures required under §§ 1026.18(g), 1026.18(s), 1026.37(c), and 1026.38(c), as applicable, would not take into account the reduction in the interest rate and payment level for the first two years resulting from the buydown. The seller-paid amount is, however, disclosed as a credit from the seller in the summaries of transactions disclosed pursuant to § 1026.38(j) and (k).
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#2278117 - 11/22/22 09:25 AM
Re: Disclosing 2/1 Builder Buydown
Wonderofitall
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10K Club
Joined: Jul 2001
Posts: 85,391
Galveston, TX
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While there might be an entry in the Seller's Summaries of Transaction to fund the escrow account in Section N - why would there be a credit from the seller to buyer in Section L, unless the amount of the escrow account was also shown as an adjustment in Section K?
I just think that at the time TRID was written, with buydowns not being around for years, that the attorneys at the CFPB were sort of clueless when this section was written and since buydowns were not currently being used, no bankers commented on this section in the original TRID proposals.
They also have the exact same statement in Paragraph 17(c)(1) - Comment 3(i) which involves a third-party buydown that is reflected in the credit contract between the consumer and the bank.
Disclosing a seller credit in both situations in the same manner does not make any sense what-so-ever.
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#2278146 - 11/22/22 08:03 PM
Re: Disclosing 2/1 Builder Buydown
rlcarey
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Diamond Poster
Joined: Oct 2015
Posts: 1,671
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While there might be an entry in the Seller's Summaries of Transaction to fund the escrow account in Section N - why would there be a credit from the seller to buyer in Section L, unless the amount of the escrow account was also shown as an adjustment in Section K?
I just think that at the time TRID was written, with buydowns not being around for years, that the attorneys at the CFPB were sort of clueless when this section was written and since buydowns were not currently being used, no bankers commented on this section in the original TRID proposals.
They also have the exact same statement in Paragraph 17(c)(1) - Comment 3(i) which involves a third-party buydown that is reflected in the credit contract between the consumer and the bank.
Disclosing a seller credit in both situations in the same manner does not make any sense what-so-ever. I think it could also be that there are different ways the buydowns are executed. In some cases I believe the creditor actually reduces the interest rate in the system, even though it is not shown as such on the note. In such cases the buydown basically functions similar to discount points. Perhaps this is more the type of transaction the CFPB had in mind, rather than the escrow account method.
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#2278245 - 11/28/22 04:37 PM
Re: Disclosing 2/1 Builder Buydown
Wonderofitall
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Diamond Poster
Joined: Oct 2015
Posts: 1,671
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This seems to be somewhat an example of what I am talking about: https://www.remnwholesale.com/announcements/temporary-buydowns/The difference being that they seem to treat the Buydown agreement as part of the credit agreement, and, thus, also reflect other aspects of the buydown in the disclosures. If the creditor basically just reduced the interest rate in the system, without having a supplement to the credit agreement, then it could potentially be done the way the CFPB seems to envision it. Perhaps even using an escrow account if they put it in the borrower's name or something with a hold on the funds when it comes to other usage of the money.
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#2278247 - 11/28/22 04:51 PM
Re: Disclosing 2/1 Builder Buydown
Wonderofitall
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10K Club
Joined: Jul 2001
Posts: 85,391
Galveston, TX
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Wow, that investor is all screwed up. They are treating that like a buyer buydown, which is nothing more than a stepped rate loan. There would be no escrow account involved.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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