TRID and Compensation Paid to Mortgage Broker by Bank

Issue/Inquiry

The Bank charges all borrowers a 1% closing fee for residential mortgage loans. It has entered into an agreement with an independent mortgage broker whereby it will pay the broker a fee equal to half of the closing fee for any loans the broker brings in. The Bank does not believe that it will be necessary to itemize the broker’s fee on the Loan Estimate, since the charge is not being paid directly by the consumer, but that it will be necessary to itemize the charge on the Closing Disclosure.

Response Summary

The Bank’s assessment is correct, since origination charges are to be itemized on the Loan Estimate only if they are paid directly by the consumer to a creditor or loan originator, but must be disclosed on the Closing Disclosure regardless of who pays the charge.

Response Detail

The Bank is correct in its assessment of the disclosure requirements applicable to the fee paid by it to the mortgage broker.

Under the TILA-RESPA Integrated Disclosure (“TRID”) Rules of Regulation Z, a creditor must provide an itemization of origination charges in the Loan Estimate under the master heading “Closing Cost Details” and the subheading, “Origination Charges.” For the purpose of this disclosure, origination charges are those charges paid by the consumer to each creditor and any loan originator for originating and extending the credit, regardless of how the credit is denominated.  12 CFR §1026.37(f)(1); Official Interpretations, ¶1026.37(f)(1) – 1.

Only charges paid directly by the consumer to compensate a loan originator are included in the amounts listed in the Loan Estimate, however. Compensation of a loan originator paid indirectly by the creditor, as through the interest rate, is not itemized. Official Interpretations, ¶1026.37(f)(1) – 2; CFPB, TILA-RESPA Integrated Disclosure, p. 32.

In this case, the mortgage broker will be considered a “loan originator,” as per section 36(a)(2) of Regulation Z, but the charge paid to the broker will be paid by the Bank rather than by the consumer. It will not be necessary, then, to itemize the broker’s fee on the Loan Estimate.

It will be necessary to itemize the mortgage broker’s fee on the Closing Disclosure, since all compensation paid to a loan originator must be disclosed regardless of the party that pays the compensation. Compensation paid by a creditor to a third-party loan originator is designated as paid by others on the Closing Disclosure. 12 CFR §1026.38(f)(1); Official Interpretations, ¶1026.38(f)(1) – 2.

This entry was posted on Monday, June 13th, 2016 at 3:00 pm.