Seller Credits and Charges

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Question:

We close many mortgage loans that have a lump sum seller credit as part of the purchase agreement. Our regulator is telling us that any seller credits for charges that affect the finance charge on the TIL need to be excluded from the finance charge. Since we now lump sum seller credits with the 2010 reg changes, we don't specifically allocate the credit to a particular charge any longer. Many times our seller credits are less than the actual closing costs and prepaids total, so how are we supposed to decide which charges the seller is "technically" contributing towards to see if it's part of the prepaid finance charge for the TIL? We are confused...is the regulator correct?

Answer:

From the Commentary to 226.4(c)(5).

2. Other seller-paid amounts. Mortgage insurance premiums and other finance charges are sometimes paid at or before consummation or settlement on the borrower's behalf by a noncreditor seller. The creditor should treat the payment made by the seller as seller's points and exclude it from the finance charge if, based on the seller's payment, the consumer is not legally bound to the creditor for the charge. A creditor who gives disclosures before the payment has been made should base them on the best information reasonably available.

Unless you have a contract with the seller that legally binds them to pay you (the financial institution) the fees then the borrower is still legally responsible for them and it does not matter who they have pay the fees for them. They are still "indirectly" paying the fees.

In my opinion the regulator (examiner) has given you incorrect advice.

First published on BankersOnline.com 1/31/11