Why Haven’t Loan Officers Been Told These Facts?
FAQ: As an MLO responsible for the Loan Estimate preparation, I want to know if lender credits have any accuracy requirements so I can adequately revise the Loan Estimate if needed.
Answer: Great question. The accuracy requirement applies to estimated fees disclosed on the LE. Therefore, should the lender choose to absorb specific costs, the lender may omit such fees from the LE—no accuracy requirement for non-existent fees.
Absorb Example, no charge on the LE
MLO: “Mr. Prospect, do we have a deal if I remove this $1000.00 AMC charge from the Loan Estimate?”
Prospect: “Yes, we do. But what if the AMC charges are higher than $1000? Will I have to pay the difference?”
MLO: “Hell no. Any additional AMC charges are my expense!”
That’s an absorbed cost. Offsets for general or specific charges are another story. For example, as a term of the financing, the lender offers to pay for the cost of the appraisal by offsetting the appraisal cost with an equivalent credit.
Offset Example, list the borrower charge under subheading B
MLO: “Mr. Prospect, do we have a deal if I extend a $1000.00 credit for any AMC charges?”
Prospect: “Sure, that sounds fair. But what if the AMC charges are more than $1000?”
MLO: “If the AMC charge exceeds $1000, ABC Mortgage will revise the estimate within three days and deliver a revised Loan Estimate that reflects the greater charge. You are responsible for any AMC charges over $1000.”
That is an offset charge. In the case of the AMC illustration, if offsetting the charge, the lender must disclose the estimated AMC charge under subheading “B” and lender credit under the subheading “J.”
Specific or general lender offsets are zero-tolerance. The lender must credit the borrower every penny of the promised credit.
As far as absorbed or offset costs relative to the CD, the CD must accurately account for lender credits, regardless of whether the charges were absorbed or offset.
From the CFPB FAQ on Lender Credits:
Q. Is a creditor required to disclose a closing cost and related lender credit on the LE if the creditor will absorb the cost?
A. No. The TRID Rule does not require disclosure of a closing cost and a related lender credit on the Loan Estimate if the creditor incurs a cost, but will not charge the consumer for that cost (i.e., the creditor will “absorb” the cost). In such cases, the absorption of the cost or charge would not “offset” an amount paid by the consumer. However, a creditor must disclose a closing cost and related lender credit on the Loan Estimate if the creditor is offsetting a cost charged to the consumer. Comment 1026. 37(g)(6)(ii)-2.
Q. Is a Creditor required to disclose a closing cost and related lender credit on the CD if the creditor will absorb the costs?
A. Yes, if the closing cost is a cost incurred in connection with the transaction. A creditor must disclose on the Closing Disclosure a closing cost it incurs even if the consumer will not be charged for the closing cost (i.e., the creditor will “absorb” the cost). If a creditor absorbs a cost incurred in connection with the transaction, the creditor must disclose such cost on the Closing Disclosure in the “Paid by Others” column in the Loan Costs or Other Costs table, as applicable.
The TRID Rule requires that the Closing Disclosure include all costs incurred in connection with the transaction.
Do you have a great value proposition you’d like to get in front of thousands of loan officers? Are you looking for talent?
BEHIND THE SCENES – Limited English Proficiency Requirements Gaining Steam
HUD Joins the FHFA LEP 1103 Requirement
Required SCIF (FNMA 1103) for Applications Dated 08/28 or Later
From Mortgagee Letter 2023-13
FHA recognizes the nation’s growing diversity and the importance of understanding Borrowers’ language preferences and removing barriers that make the homebuying process less accessible to some prospective homebuyers. Therefore, FHA seeks to increase the ease of use of its programs for prospective Borrowers with Limited English Proficiency (LEP) and/or a lack of familiarity with the homebuying process. Toward this end, FHA is adopting industry-standard requirements regarding the provision of the Fannie Mae/Freddie Mac Form 1103, Supplemental Consumer Information Form (SCIF), to a Borrower at the time of application for an FHA-insured Mortgage.
From the June 27 Press Release
Today, the Federal Housing Administration (FHA) is announcing that it will require lenders to use the Supplemental Consumer Information Form (SCIF) when originating mortgages for FHA insurance. The SCIF (Fannie Mae/Freddie Mac Form 1103) is an industry-recognized form used during the mortgage application process that allows borrowers to voluntarily identify language preferences and provide information on housing counseling and homeownership education they may have received.
Requiring the SCIF can inform a lender or mortgage servicer’s provision of services in languages other than English and in accordance with a borrower’s understanding of the homebuying and mortgage lending processes. The SCIF will be required for loan applications dated on or after August 28, 2023.
“Borrowers should be able to fully understand their options and obligations when they are seeking mortgage financing,” said Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon. “Using the SCIF is an important means of obtaining information to assess the breadth of education and language needs of borrowers so that lenders can best meet their needs.”
Lenders working with prospective borrowers seeking FHA-insured Title II forward mortgage financing will be required to present the SCIF to borrowers as part of the mortgage application process. Lenders will transmit any information a borrower chooses to provide to FHA as part of the lender’s required loan application data submissions.
“The SCIF has already been adopted for conventional mortgages and we believe that its use is even more important for FHA-insured mortgages, given FHA’s outsized role in providing access to mortgage financing for underserved populations,” said Deputy Assistant Secretary for Single Family Housing Sarah Edelman. “This announcement complements the work we recently completed to provide translated versions of mortgage documents and homebuyer education resources.”
On June 13, 2023, FHA announced the availability in Chinese, Korean, Spanish, Tagalog, and Vietnamese versions of more than 30 single family mortgage documents and related resources associated with FHA programs. The educational resources are intended to assist lenders, servicers, housing counselors, and other FHA program participants in explaining information related to homebuying and FHA-insured mortgages to those with limited English proficiency.
See the announcement and corresponding mortgagee letter link below.
Tip of the Week
The Power of Storytelling
By relaying the past successes of people which your prospect can identify with, the right story can help validate that we get it. Accordingly, when people feel understood, they feel respected. The prospect’s sense that you care about them is foundational to rapport. Use your past success or knowledge of successful loan solutions to paint a mental picture by storytelling.
Rather than reinvent the wheel, depict a standard borrower solution to help the prospect visualize and articulate their needs and wants. Then tailor the requirements to fit the needs.
For example, consider first-time-buyer obstacles and concerns. Storytelling is helpful in broadcasting the knowledge needed to buy a home in a non-threatening and relatable manner. The person identifying with the story is generally impressed that we get it – we get them.
For example, “Recently, we helped a young couple purchase their first home. Because of high rents and student loan payments, they thought they’d need more savings to buy a home.
On top of everything else, these folks used cash and debit cards – neither had the viable credit scores required for traditional credit loans. Consequently, the couple assumed that their home-buying options were limited. As a result, they were discouraged and unsure of how to make their dream of homeownership a reality.
So we leveraged a second mortgage from the state Housing Finance Agency for the downpayment and closing costs and combined that with an FHA first mortgage. We used a nontraditional credit program to obtain very competitive loan terms. Between the downpayment assistance from HFA and the lender credits, they closed with no money down and no closing costs! This program enabled the couple to keep their savings in the bank and buy the home they wanted.
Their ability to maintain a rainy-day fund was critical in this couple’s decision to buy their first home. Amazingly, the mortgage payment was only slightly higher than they’d been paying for rent! It was awesome.”
Once the prospects have a clearer picture of typical financing challenges and workable solutions, we can use the prototype solution to begin tailoring the solutions. Effective solutions start with a better understanding of stakeholder wants and needs as a person, not just a buyer. That begins with more effective communication.
Storytelling is a highly effective means to comprehend the prospect’s success criteria and, at the same time, provide prospects with the information and emotional support to move them from the sidelines and into the game.
Use stories or examples of success stories. Success stories can include more minor deliverables necessary to achieve or sustain homeownership. If you are new to originating or want to originate loan types that are new to you, use the success stories of your peers.
For example, “My associates have shared with me that their customers sometimes need to be more open to sharing their financing concerns with their loan officer. For example, one of the more common concerns with first-time homebuyers is what happens if they lose their income. Will I end up getting foreclosed on? Let me take a moment to assure you that I won’t be saying goodbye to you at the closing table. At XYZ Mortgage, closing is just the beginning of our services.
Instead, post-closing, I’ll work with you to ensure you understand the significant protections federal law provides to homeowners that experience financial hardships, including a copy of our “Emergency Roadside Kit” for borrower emergencies.”