The CFPB recently updated its TILA-RESPA Integrated Disclosure FAQs by adding ten FAQs that relate to lender credits. The FAQs pointed to TRID regulatory text and official commentary to clarify the rules relating to lender credits and help the industry understand how the rules relate to one another.
Under TRID, a lender credit (an amount the creditor provides to the consumer) is treated as either a specific lender credit or a non-specific (or general) lender credit. In general, lender credits can include, for example, a credit, rebate, reimbursement, or similar payment from a creditor to the consumer that offsets all or part of the closing costs the consumer will pay as part of the mortgage loan transaction, or premiums in the form of cash that the creditor provides the consumer in exchange for specific acts (e.g., to accept a specific interest rate) or as an incentive. However, a specific lender credit addresses a specificclosing cost, while a general lender credit is a generalized payment which does not specify the particular cost(s) being offset. This distinction is important because specific lender credits and general lender credits are disclosed differently on the Closing Disclosure (CD).
In addition to the distinction between and varying treatment of specific and general lender credits, other concepts highlighted by the new FAQs include the following, among others, identifying in relevant instances how to disclose these credits on the Loan Estimate (LE) and CD:
- A creditor is not required to disclose a closing cost and a related lender credit on the LE if the creditor will “absorb” the cost––i.e., if the consumer will not be charged for the closing cost.
- A creditor is required to disclose a closing cost and a related lender credit on the CD if the creditor will “absorb” the cost if the closing cost is a cost incurred in connection with the transaction.
- For a “no-cost loan,” whether a creditor is absorbing closing costs and/or offsetting closing costs impacts how a creditor discloses lender credits for those transactions.
- Under TRID, lender credits are negative charges to the consumer that are subject to the rule’s good faith requirements, so whether they can change from the amounts originally disclosed to the consumer, and in particular whether they can be decreased from those amounts (i.e., resulting in an increased charge to the consumer), depends on the circumstances (e.g., whether there has been a valid changed circumstance and related consumer disclosures have been made).