Compliance Blog

Happy Monday and National Nap Day, Compliance Friends!

Before you commence post-daylight savings napping, join me for a compliance blog.

A few months ago, I wrote a riveting blog about disclosing lender credits on the loan estimate. I explained that credit unions are not permitted to decrease the amount of general or specific lender credits, even if the closing costs decrease from the estimated amount. That means trying to offer a “no closing costs” loan puts credit unions at risk of having to refund borrowers cash if their estimate of lender credits ended up being higher than needed to cover closing costs.

Recently, the CFPB heard our cries for help and released 10 FAQs about lender credits. This blog will discuss a few of the questions from the CFPB’s guidance that closely resemble some of the issues we have seen.

“Question 3. Is a creditor required to disclose a closing cost and a related lender credit on the loan estimate if the creditor will absorb the cost?”

The CFPB clarified that credit unions are not required to disclose a closing cost and a related lender credit on the loan estimate if the credit union will absorb the cost. This is only applicable if a credit union will not charge the member for the cost. Contrarily, if a credit union is offering to offset a cost charged to the member, the cost and related lender credits are required to be included on the loan estimate. See, 12 CFR § 1026.37(g).

“Question 4. Is a creditor required to disclose a closing cost and a related lender credit on the closing disclosure if the creditor will absorb the cost?”

Unlike the requirements for the loan estimate, credit unions are required to disclose all closing costs on the closing disclosure, even if the credit union absorbs the cost. If a credit union absorbs a cost and does not charge the member for it, this cost must be included on the closing disclosure in the “paid by others” column or in the loan costs or other costs table. See, 12 CFR § 1026.38(f)-(g).

“Question 7. How does a creditor disclose lender credits for a loan that the creditor refers to as a “no-cost” loan?”

The answer to this question ties directly back to the answer to question 3. If a credit union is incurring closing costs but will not charge the member for the closing costs, the credit union is not required to include the costs or related lender credits in the loan estimate. However, if a credit union is offsetting some or all of the costs, the credit union is required to disclose each of the costs charged to the member and the related lender credit.

“Question 8. How does a creditor disclose lender credits if the creditor provides a credit, rebate, or reimbursement to offset specific closing costs charged to the consumer?”

If a credit union offers specific lender credits to offset one or more specific closing costs charged to a member, these costs and corresponding lender credits are required to be disclosed on the loan estimate. If the amount of the cost is unknown, credit unions are expected to use the best information reasonably available at the time to estimate the cost. See 12 CFR § 1026.17(c)(2). On the closing disclosure, credit unions are required to include the closing costs in the “paid by others” column. See, 12 CFR § 1026.38(h).

“Question 9. How does a creditor disclose lender credits when it is offsetting a certain dollar amount of closing costs charged to the consumer without specifying which costs it is offsetting?”

If a credit offers lender credits to offset a specific amount of closing costs, the total amount should be disclosed as a negative number as lender credits in the “total closing costs” section and in the “estimated closing costs” portion on the “costs at closing” table. See, 12 CFR § 1026.37(d)(1). On the closing disclosure, the total amount is required to be disclosed under the “total closing costs (borrower-paid)” section and on the “costs at closing” table. See, 12 CFR §§ 1026.38(d)(1) and 1026.38(h)(3).

“Question 10. Can lender credit change?”

In the last response, the CFPB reiterates the rule that lender credits are subject to 0 percent tolerance and a decrease in the amount of lender credits disclosed on the loan estimate can lead to a violation of the good faith standard. Credit unions may decrease lender credits only if there is a changed circumstance allowing the credit union to send a revised estimate. See, 12 CFR § 1026.19(e)(3-4).

To review all of the questions, explanations and examples provided by the CFPB, see the full Lender Credit FAQs.