We know you’ve had a LOT going on this year!
Have you found the time to keep up with the CFPB’s TRID FAQs? The CFPB has updated them a couple of times in 2020, addressing things such as signatures lines, as well as, differences in disclosing costs that are “absorbed” versus “offset”. For example, if you’re not going to charge for something, such as a credit report, the fee doesn’t need to be disclosed on the Loan Estimate. It does, however, still need to be on the Closing Disclosure. The rules are also a little different when you “offset” costs. This is an important distinction that the updated FAQs clarified.
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Are you absorbing costs or are you offsetting costs? And the topic is TRID. And the answer to that question is going to be very important for how things get disclosed on your loan estimate and your closing disclosure.
Hi, there. This is Jared Moyer with Bankers Compliance Consulting, and I think most training sessions that I do, especially the live ones, this is a topic that comes up. No cost and partial no-cost loans, as well as, eh, we’re just going to eat this charge or waive this charge. Well, the CFPB, through their frequently asked questions, address this. Now, the regulation addresses it, but not as black and white as the FAQs do. So what we’re going to do is we’re going to look at these costs in two different buckets. We’re going to talk about costs that are offset, and that would be your no-cost and partial no-cost loan products. And the other bucket that we’re going to look at is absorbed costs. In fact, we’re going to start there.
So if your bank is just absorbing the cost, in other words, maybe you don’t charge for credit reports or you negotiate, the borrower won’t have to pay for this fee or that fee, that’s an absorbed cost. And how that’s handled on the loan estimate is you can either disclose it and do a lender credit to offset it, or you can simply leave it off. That’s the interpretation as relates to absorbed costs on the loan estimate. The closing disclosure though, is a different story. When we’re talking about absorbed costs on the closing disclosure, those all have to be listed. You can’t just leave it off the closing disclosure. So you’ll have to list it, and then the fee will actually show up in the ‘paid by others’ column. So that’s how you handle absorbed costs, loan estimate to closing disclosure.
Now, offset costs. Those would be your no-cost and partial no-cost loan products. This is one where we get the biggest amount of pushback on this issue. And these Q and A’s, to me, put the issue to rest. What the Q and A’s state is that if you’re doing no-cost or partial no-cost loans, those fees for that product all have to be transparent and listed on your loan estimate, as well as the closing disclosure. The lender credit also has to be fully listed on your loan estimate, as well as the closing disclosure. Now, the concern from the banking industry is that if I list a credit on my loan estimate, let’s just say that the fees add up to be $3,000 and you’re doing a no-cost product. Well, then the lender credit should be equal to the loan cost for it to be no cost. So if there’s 3000 in fees, the credit should be $3,000.
The fear though is, because of the way the rules are written, when we get to the actual charges on the closing disclosure, let’s pretend they come in at $2,500. So they came in $500 less than what we estimated on the loan estimate. You might be thinking, well, that’s good for my borrower. It’s even better for your borrower because not only do the fees go down from 3,000 to 2,500, they also still get the full $3,000 credit that you originally disclosed on the loan estimate, assuming there was no changed circumstance. I guess it comes with that assumption. In which case, in addition to not having to pay the fees, which went down, they also get an extra $500 because you can’t lower that credit unless it’s related to a legitimate changed circumstance.
So the games that have been played have been where we manipulate the numbers a little bit. And you can’t do that. You got to be fully transparent with the fees, fully transparent with the lender credit, and if it’s no-cost, it should wash to zero on the loan estimate. When you get to the closing disclosure, if those fees go down, that lender credit remains the same. You cannot reduce that. That would be a tolerance violation because the lender credit is a 0% tolerance.
I know this is a heavy issue, but it’s one we cover in detail in a lot of our trainings. If you’re looking for more information, I encourage you to check out our training library; we have a lot of different solutions out there. Or simply pick up the phone and give us a call. We’d love to partner with you and help you out with your TRID compliance needs. Thanks.