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Thursday, May 28, 2015

TRID: Disclosing fees not required by Lender

Question
Do services - and the fees for such services - that are not required by a lender need to be disclosed on the Loan Estimate once the TILA-RESPA Integration Rule becomes effective on August 1, 2015?

Answer
Yes, the CFPB has made it clear that fees paid by the borrower, even if not required by the lender or part of the loan transaction must be disclosed on the Loan Estimate. This would include the commissions of real estate brokers or agents, additional payments to the seller to purchase personal property pursuant to the property contract, homeowner’s association and condominium charges associated with the transfer of ownership, engineer inspection fees and personal attorney fees.

Specifically, a creditor is required to itemize in the column titled “Other” in the Closing Costs Details provided on page 2 of the Loan Estimate “any other amounts in connection with the transaction that the consumer is likely to pay or has contracted with a person other than the creditor or loan originator to pay at closing and of which the creditor is aware”. [12 CFR 1026.37(g)(4)] 

The Official Commentary states:

Examples. Examples of other items that are disclosed under § 1026.37(g)(4) if the creditor is aware of those items when it issues the Loan Estimate include commissions of real estate brokers or agents, additional payments to the seller to purchase personal property pursuant to the property contract, homeowner’s association and condominium charges associated with the transfer of ownership, and fees for inspections not required by the creditor but paid by the consumer pursuant to the property contract.
[Official Commentary: 12 CFR 1026.37(g)(4)]

Further, Official Commentary provides additional guidance when discussing the good faith requirement for services chosen by the consumer that are not required by the creditor.
[Official Commentary: 12 CFR 1026.19(e)(3)(iii)-3]

The foregoing comment states, in pertinent part, that:

… if the subject property is located in a jurisdiction where consumers are customarily represented at closing by their own attorney, even though it is not a requirement, and the creditor fails to include a fee for the consumer's attorney, or includes an unreasonably low estimate for such fee, on the original estimates (Loan Estimate) then the creditor's failure to disclose, or under-estimation, does not comply with § 1026.19(e)(3)(iii).

As this is a big change from existing requirements, brokers, lenders and loan originators need to make sure that they have policies and procedures in place to comply with the foregoing requirements.

Michael Barone
Director/Legal & Regulatory Compliance
Lenders Compliance Group