On February 26, the CFPB released 10 new lender credit FAQs to assist with TILA-RESPA Integrated Disclosure Rule (TRID Rule) compliance. Highlights from the FAQs are listed below:
“[L]ender credits include [(i)] payments, such as credits, rebates, and reimbursements, that a creditor provides to a consumer to offset” a consumer’s closing costs paid “as part of the mortgage loan transaction”; and (ii) “premiums in the form of cash” provided by a creditor “to a consumer in exchange for specific acts, such as for accepting a specific interest rate, or as an incentive, such as to attract consumers away from competing creditors.”
Lender credits can be specific or non-specific. Non-specific lender credits are also known as “general lender credits.” The FAQs provide examples of both types of lender credit, and note that the distinction is important, as the two types of lender credits are disclosed differently on the Closing Disclosure.
Creditors are not required to disclose “a closing cost and a related lender credit on the Loan Estimate if the creditor” absorbs the cost, but will be required to disclose these costs if they are “offsetting a cost charged to the consumer.”
Creditors are required to disclose a closing cost and a related lender credit on a Closing Disclosure if they absorb the cost, “even if the consumer will not be charged for the closing cost.”
To disclose lender credits on a Loan Estimate, creditors must calculate the sum “of all general and specific lender credits.”
The nature of how lender credits are disclosed on a Closing Disclosure varies based on whether it is a general lender credit or a specific lender credit.
The nature of how lender credits for a “no-cost loan” are disclosed varies based “on whether [a] creditor is absorbing closing costs as well as whether [it] is offsetting costs for specific settlement services.”
When disclosing all of the closing costs charged to consumers, creditors must include a corresponding total amount of lender credits.
Creditors that provide “a lender credit to offset a certain dollar amount of closing costs” without specifying which costs are providing a general lender credit. The FAQs outlines the disclosure process.
Lender credits can only change in certain circumstances. Regulation Z does not limit increases in lender credits on a Loan Estimate, but a decrease in “lender credits disclosed on [a] Loan Estimate” may “lead to a violation of the good faith disclosure standard” if it is not tied to a triggering event outlined in Regulation Z.