Lender Credit for Closing Costs
A lender offered to pay $900 in "lender credit" to keep closing costs to $500. Offer was in written form, on the application. However, at closing, the credit disappeared, the agent claimed that fannie mae rules prevented the credit (from an email)"....it is not our policy, it comes from Fannie Mae and thier guidelines...... ", "....There is a lender credit in point, however, you cannot give a lender credit unless it is to zero the borrowers out or there is a violation we need to cure when the borrower is getting cash back....."Is this true, or am i getting the bait and switch???Ohio Conv Mortgage, 3.5%, no origination, no points.Thank you by neal.t_852_283 from Fort Loramie, Ohio. Nov 7th 2012
Phil Dumouchel (PhilDu)
#32 ranked lender in South Carolina - 2,249 contributions
On most loans you can't get money back that you didn't pay out, so if the lender credit is more than your costs (including both closing costs and prepaids and escrows) you can't get money back at closing. While it's possible that the lender over estimated your costs so they would not have to give you the credit more likely the costs came back lower than they projected so that you would not need to bring any money to closing. If you are getting a rate of 3.5% with 0 origination or points, and all your other costs are being covered through the remaining lender credit it sounds like a pretty competitive deal. You might find slightly better by shopping around but if you are ready to close, my recommendation is to take the loan and move on - you seem to have caught it at very close to the best available.
Raymond Denton (Raymond)
#10 ranked lender in Ohio - 224 contributions
No, it's not true. If I offered to pay $900.00 of your fees, and it was in writing, I'd be obligated to provide you with a $900.00 Lender Credit.
Ronald Keen (ronald.keen@vantagepointbank.com)
#51 ranked lender in New York - 11 contributions
A lender credit that was not input on the GFE technically is not binding. If it was on the 1003 (Loan Application) it is not a bound credit. A competent loan officer would have explained to you that the GFE now is more like a contract. The origination charges can't increase (with the exception of bona fide discount points) once it has been issued.
Joe Metzler (JoeMetzler)
#17 ranked lender in Minnesota - 4,843 contributions
First, understand all loans have full closing costs. No lender officially is able to close a loan for $500. What lenders do is lower your closing costs by increasing your interest rate to a rate that pays them enough to absorb all your closing costs. The amount of your overall credit, combined with the interest rate can change daily. For example, assume your rate is 4.00%, and I am giving a credit of $5000. Maybe rates move slightly tomorrow, I still give you a 4.00% rate, but now your credit is only $4500. BUT, once LOCKED, that will not change. My guess, is simply that the person was off on your overall closing costs which wiped out the $900 difference. Then, to explain it, he made a bad "story". Sounds to me like you are working with an unlicensed bank application clerk.
Derick Condron (rightstartoregon)
#30 ranked lender in Oregon - 598 contributions
Unless you are getting more cash back then you had in the transaction this is a bait and switch. IE on a purchase if you are not meeting your mininmum cash interest in the transaction then you will lose that lender credit.
Tim Bradford (Tim Bradford)
#5 ranked lender in Ohio - 145 contributions
Neal, Not enough information is available to give you a clear answer. IT almost should like this is a refiance so if you do not like the terms being offerred at the closing table, you have the option not to proceed with the refinance. As others have said, today lenders are bound by the GFE (Good Faith Estimate) that they give to you. If any changes occur a new GFE needs to be issued before closing. With that said, there are rules that need to be followed, but not sure if your lender saying FANNIE MAE RULES is correct. I am a lender in OHIO and if you wish to give me a call, I will gladly share my opinion and thoughts. You can find my contact information on my profile page.
Don't get me wrong, I know it is still a very good deal. That's the only reason that we agreed to close. I knew it would be hard to find anything comparable, esp. starting from scratch again. However, I also don't compromise on integrity. I really just want the straight answer. If I was lied to, I'll file a complaint.I also fully understand that there are always closing costs. It's just a matter of how much, and in this case, who pays them.More loan details:cash out refi, 30yr conv., 3.5%, 292K loan, 240K value, 80% LTV, 176K payoff, 11K cash out, no orig, no pts, $1400 costs (title ins, etc), $1600 prepaids. The deal was he was supposed to give $866 in lender credit, which would lower costs to ~$450, so i was not getting a net gain from lender credit vs. costs.The story is i initally applied at 3.75%, $1400 non-prepaids. I then recieved a better offer and the two battled it out until he had the best offer as described above. I signed the modified app, but i did not recieve a new GFE, which i know i should have within 3 days. At closing, the credits suddenly disappeared. I questioned it and they printed my GFE for me to compare. However they printed the initial GFE, not the updated one, which i did not catch at the time. So the closing costs on the old GFE matched the HUD-1 that was presented, however the interest and carryover line items did not (which i also did not catch until later). Since the aggregate closing costs matched, and I stupidly did not bring my copy of the modified application with me, i went with it. After i got home i discovered the missing credit. I called to inquire and got the response that the lender credit could only be used to "zero the borrower out or there is a violation we need to cure..", and that is was a Fannie Mae rule. It was also then that i learned their closing dept. had denied the credit and modified the loan 3 days before closing, but no attempt was made to notify me prior or during closing. I did call Fannie Mae, they stated that they could not discuss specifics as it is proprietary, but they are not a regulatory body and as such issue only guidelines. They did say that they generally don't care much about who pays for what, and it was most likely the lenders policy to deny the credit. I also spoke to a loan officer at my bank. He had never heard of such a rule, but he is checking with his underwriters to be sure. I also perused the RESPA (where i learned about the 3 day GFE requirement), and I see it very specifically spells out how to fill out the HUD-1 to apply a lender credit. So unless I hear something different, it sound to me like i was made an offer that the lender is capable of making good on, they just don't want to.Thanks all for the help.
Phil Dumouchel (PhilDu)
#32 ranked lender in South Carolina - 2,249 contributions
Ok, if the final deal that was renegotiated was for a $900 lender credit at 3.5% they should honor that. But, if you didn't get it in writing it may be difficult to prove. You could try calling and ask to talk to the manager of the mortgage department and give them the details, tell them you are considering calling regulators and see what they'll do. No mortgage lender likes to have negative publicity and none like to attract attention from regulators. While it is possible they are legally okay, it still isn't right - any reputable lender would have made sure you go the deal that was committed to. It was/is a good deal especially with the cash out but that still doesn't make it right. Joe's right, doesn't sound like you are dealing with a truly experienced mortgage officer. Good luck
Ask our community a question.
Get an answer
Related Questions
