Conquering the Loan Estimate Part 2: Disclosing Points and Fees

In part one of this blog, we addressed the disclosure of interest rates on the Consumer Financial Protection Bureau’s Loan Estimate, which starting will replace the current GFE and early Truth-in-Lending Disclosure for loan applications received on or after Aug. 1, 2015.

Today in part two, we address disclosure of points and fees. Generally, the creditor decides how it wishes to itemize the origination charges section on the Loan Estimate. However, some charges are required to be itemized, including points and Loan-Level Price Adjustment (LLPA). To the extent the consumer will pay for these charges, they should be disclosed under the Services You Cannot Shop For section. (§ 1026.37(f)(2)).

When disclosing points and fees, creditors should determine whether the charge is associated with origination costs or whether it is a form of interest. If the charge is not intended to reduce the interest rate, then it is not a point and cannot be disclosed as such. This is the case even if the charge is a portion of the loan amount. Only points charged in connection with an interest rate reduction may be disclosed as points on the Loan Estimate. (§ 1026.37(f)(1)(i)). This requirement prohibits creditors from identifying origination fees as points as a means of preserving its tax deductibility for the consumer. Any charges other than points require clear and conspicuous terminology that describes the service. (Comment 37(f)(1)-3). If there are no charges that reduce the interest rate, creditors should leave the points line on the form blank rather than mark the line “N/A”. (Comment 37-1).

When a creditor pays a LLPA to the secondary market purchaser, the creditor may have to disclose the charge in certain situations. If the creditor does not charge the consumer an upfront fee, but rather passes the cost of the LLPA to the consumer through interest, the creditor does not need to disclose this charge as it is not considered a settlement charge under the rule. (See § 1026.37(f)).

However, if the creditor charges an upfront fee for the LLPA, the creditor should disclose the fee based on how it is charged. If the LLPA is charged at closing as a flat origination charge, the charge should be labeled an origination charge. Alternatively, if the creditor includes the cost of the LLPA in the interest rate, and then allows the consumer to pay a point to reduce the interest rate, the charge would be disclosed as a point on the Loan Estimate.