Newspaper Loan Closing Coupon - APR & Disclosures

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Question:

Our marketing person would like to offer $100 off loan closing costs on mortgages until the end of June with a cutout coupon in the newspaper. Would we have to show this as a POC on the HUD and does it affect the APR?

Answer:

A closing coupon credit would be shown in the 200 series on the HUD-1. See Question #12 here.

Because you are simply providing credit toward overall closing costs with the coupon (and following HUD's guidance on recording that credit on the HUD-1 Settlement Statement), there is no change to the finance charges or APR. If the credit were to be specifically toward an identified element of the prepaid finance charges (for example, a credit of $100 toward buyer's points on the loan), you would not show the $100 in the 200 series. Instead, you'd show it in the normal spot for the prepaid finance charge in question as a $100 POC item, paid by the lender. In that case, the TIL disclosure of finance charges would be affected, as would the APR.

On most mortgage loans, a $100 reduction doesn't make an appreciable difference in the finance charge and APR, so it's usually easier to apply the credit to overall closing costs in the HUD-1 200 series, and leave the TIL disclosure untouched.

First published on BankersOnline.com 6/30/08