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Ask the Compliance Experts: May 2017

Question:

If a consumer selects a rate that has a rebate, why isn’t the rebate disclosed in box “A “loan costs as a credit? If they are paying a fee for a specific rate it shows there as a charge. Instead it is showing up as a lender credit. In my mind a lender credit is way different that a credit for the rate chosen.

Answer:

Completion of the Loan Estimate and Closing Disclosure is governed by Regulation Z as implemented by the Truth in Lending Act. Section 1026.37(g)(6)(ii) discusses the disclosure of lender credits. The official interpretation of this section reads as follows, “For loans where a portion or all of the closing costs are offset by a credit or rebate provided by the creditor (sometimes referred to as “no-cost” loans), whether all or a defined portion of the closing costs disclosed under § 1026.37(f) or (g) will be paid by a credit or rebate from the creditor, the creditor discloses such credit or rebate as a lender credit under § 1026.37(g)(6)(ii). The creditor should ensure that the lender credit disclosed under § 1026.37(g)(6)(ii) is sufficient to cover the estimated costs the creditor represented to the consumer as not being required to be paid by the consumer at consummation, regardless of whether such representations pertained to specific items.”

 

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