The CFPB recently launched theirs Frequently asked questions about the integrated disclosure of TILA-RESPA by adding ten FAQs related to lender credit. Reference was made in the FAQs to the TRID regulatory text and official commentary to clarify the rules regarding lender loans and to help the industry understand the relationship between the rules.
According to TRID, a lender loan (an amount that the lender makes available to the consumer) is treated as either a specific lender or a non-specific (or general) lender. In general, lender loans may include, for example, a loan, discount, refund, or similar payment to the consumer by a lender that offsets all or part of the closing costs that the consumer will pay as part of the mortgage loan transaction, or rewards in the form of cash, that the lender makes available to the consumer in return for certain actions (e.g. to accept a certain interest rate) or as an incentive. However, a specific lender loan addresses specific closing costs, while a generic lender loan is a generic payment that does not specify the specific costs that will be offset. This distinction is important because specific lender loans and general lender loans are disclosed differently on the Closing Disclosure (CD).
In addition to the differentiation and different treatment of specific and general loans from lenders, other concepts that are highlighted in the new FAQs include the identification in relevant cases of how these loans are disclosed on the loan estimate (LE) and CD:
- A creditor is not required to disclose closing costs and an associated loan from the lender on the LE if the obligee “picks up” the costs – that is, if the consumer is not billed for the closing costs.
- A creditor must disclose the closing costs and an associated loan from the lender on the CD if the obligee “pays” the costs if the closing costs are costs incurred in connection with the transaction.
- In the case of a “free loan”, whether a creditor pays and / or offsets closing costs has an impact on how a creditor will disclose credit to lender for those transactions.
- According to TRID, lender loans are negative burdens for the consumer that are subject to the requirements of good faith, i.e. whether they can change from the amounts originally disclosed to the consumer, and in particular whether they can be reduced by these amounts (i.e. resulting in an increased Load on the consumer), depends on the circumstances (e.g. whether a valid changed circumstance has occurred and appropriate consumer disclosures have been made).