Written by Elizabeth M. Young LaBerge, Regulatory Compliance Counsel
It is almost upon us. On Saturday, the CFPB’s long-looming TRID rules actually go into effect. As credit unions prepare to use the new forms in actual transactions, the practical complexities and ambiguities of the rules are crystalizing before us. Your NAFCU Regulatory Compliance Team is fielding all your last-minute TRID clarifications, and one that keeps popping up again and again is lender credits. Below is a summary of the language in the comments and Preamble to clarify how to disclose lender credits.
Lender Credits and the Loan Estimate
Section 1026.37(g)(6)(ii) requires that the amount of lender credits be disclosed as a negative number, but the details of disclosing lender credits are largely described in the Preamble and the Official Interpretations. In order to determine what might be considered a “lender credit” the commentary to 1026.37 points you to the commentary to 1026.19. Specifically, comment 1026.19(e)(3)(i)-5 describes that lender credits come in two forms: general and specific:
“Lender credits,” as identified in § 1026.37(g)(6)(ii), represents the sum of non-specific lender credits and specific lender credits. Non-specific lender credits are generalized payments from the creditor to the consumer that do not pay for a particular fee on the disclosures provided pursuant to § 1026.19(e)(1). Specific lender credits are specific payments, such as a credit, rebate, or reimbursement, from a creditor to the consumer to pay for a specific fee.
With that clarifying detour out of the way, we can return to section 1026.37(g)(6)(ii) on how to complete the form. Comment 1026.37(g)(6)(ii)-1 confusingly describes all lender credits disclosed in the form as general credits, but then Comment 1026.37(g)(6)(ii)-2 clarifies that specific credits should be disclosed in the same box as well:
For loans where a portion or all of the closing costs are offset by a credit or rebate provided by the creditor (sometimes referred to as “no-cost” loans), whether all or a defined portion of the closing costs disclosed under § 1026.37(f) or (g) will be paid by a credit or rebate from the creditor, the creditor discloses such credit or rebate as a lender credit under § 1026.37(g)(6)(ii).
The lender credits disclosed under section 1026.37(g)(6)(ii) are disclosed in Box J of the Loan Estimate.
Lender Credits and the Closing Disclosure
So, after some circumnavigation through the commentary, we have determined the general credits and the specific credits are combined in your Loan Estimate. But what to do in the Closing Disclosure? Lender credits must be included in the Closing Disclosure under section 1026.38(h)(3). Comment 1026.38(h)(3)-1 clarifies what to do with specific credits:
When the consumer receives a generalized credit from the creditor for closing costs, the amount of the credit must be disclosed under § 1026.38(h)(3). However, if such credit is attributable to a specific loan cost or other cost listed in the Closing Cost Details tables, pursuant to § 1026.38(f) or (g), that amount should be reflected in the Paid by Others column in the Closing Cost Details tables under § 1026.38(f) or (g). For a description of lender credits from the creditor, see comment 17(c)(1)-19. For a discussion of general lender credits and lender credits for specific charges, see comment 19(e)(3)(i)-5.
So while both specific and general lender credits are entered into Box J on the Loan Estimate, only general lender credits are entered into Box J on the Closing Disclosure. Specific lender credits are itemized in the Closing Disclosure in the “Paid by Others” column. Of course removing specific credits from the lender credits will reduce the total in Box J as compared to the Loan Estimate. Regarding a good faith analysis, Comment 1026.19(e)(3)(i)-6 gives the following guidance:
For purposes of conducting the good faith analysis required under § 1026.19(e)(3)(i) for lender credits, the total amount of lender credits, whether specific or non-specific, actually provided to the consumer is compared to the amount of the “lender credits” identified in § 1026.37(g)(6)(ii). The total amount of lender credits actually provided to the consumer is determined by aggregating the amount of the “lender credits” identified in § 1026.38(h)(3) with the amounts paid by the creditor that are attributable to a specific loan cost or other cost, disclosed pursuant to § 1026.38(f) and (g).
Lender Credits and Revisions
Lender credits get zero tolerance for decreases under section 1026.19(e)(3) because both general and specific lender credits are negative charges to the consumer. Comment 1026.19(e)(3)(i)-5 states that decreasing the lender credit is the equivalent of increasing a charge to the consumer. Comment 5 also makes it clear that a lender can increase lender credits to compensate for higher fees as much as they desire, but they cannot lower it.
If a specific lender credit is given in a Loan Estimate, and the cost it is intended to compensate comes in lower than expected, the Commentary and Preamble, page 349 makes it clear that the borrower still must receive that credit somehow:
Under current Regulation X, the loan originator may only apply the amount of the excess lender credits to additional closing costs previously not anticipated to be included in the loan, apply the excess to a principal reduction to the outstanding balance of the loan, pay the consumer the excess in cash, or reduce the interest rate and the credit accordingly. Creditors will be able to take the same actions with respect to lender credits in streamlined refinancing programs under this final rule.
The inability to decrease a lender credit isn’t absolute though. Section 1026.19(e)(iv)(D) clearly contemplates revising a loan estimate with decreased lender credits which result from a rate lock. Further, the Preamble on page 348 states: “With respect to whether a changed circumstance or borrower-requested change can apply to the revision of lender credits, the Bureau believes that a changed circumstance or borrower-requested change can decrease such credits, provided that all of the requirements of §1026.19(e)(3)(iv), discussed below, are satisfied.” As long as the decrease in lender credits is related to a valid reason for a revised Loan Estimate under section 1026.19(e)(3)(iv), nothing indicates that loan credits cannot be decreased.
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Do not forget NAFCU members, your NAFCU Regulatory Compliance team is here to help you hash out the last minute details as you implement these rules. Don't hesitate to email us at [email protected].
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