***VERY IMPORTANT ANNOUNCEMENT***
It is critical to ensure that transactions are properly structured, and points and fees charged on a transaction are properly reflected on the CDs for the first mortgage to avoid fees charged to the borrower that exceed the QM 3% maximum points and fees rule, sometimes resulting in very large refunds to borrowers. To assist you in properly structuring and disclosing your transaction, please see the below guidance, which we received for our outside legal counsel.
“A creditor should be able to exclude a … seller-paid fee from the finance charge and points and fees regardless of whether that fee is paid using a specific credit or a general credit because, in both cases, the consumer ultimately is not responsible for the charge. However, the Closing Disclosure must “reflect the actual terms of the legal obligation between the parties.” … the safest approach is for the Closing Disclosure to reflect … seller-paid amounts that will be excluded from the finance charge and points and fees in, … the … Seller-Paid column on page 2 of the Closing Disclosure.”
To be clear, in order to exclude discount points from the 3% points and fees rule, a seller credit covering the discount points should be specifically defined to be applied to the discount AND Section A of the CD should reflect the discount in the Seller Paid column. If you would like, we have available a sample addendum to the note that must be signed prior to or at the time of closing that directs any seller credit to first be applied to discount points. With this addendum and the discount points reflected in the seller’s column of the CD, those discount points will not be included in 3% points and fees calculation.
WARNING: It is critical to structure transactions correctly prior to closing because there is no cure for incorrectly applying a seller credit if the points and fees rule is violated other than refunding money to the borrower. A copy of this memo is available upon request.