Where do you disclose closing costs related to a simultaneous second loan?
Follow-up to previous newsletter.
So you might have seen our earlier newsletter on issues related to disclosing simultaneous second lien loans with the new TILA-RESPA disclosures.
Well one issue we did not address was where to put closing costs associated with the simultaneous loan. For example, where to disclose the cost of recording the second mortgage? Does the cost of recording the second mortgage go with our recording fees?
Simple Answer
Trick question - individual fees associated with a simultaneous second loan are actually not going to be disclosed on the Closing Disclosure for the 1st mortgage. A simultaneous second loan is a separate transaction and will have is own separate disclosures. That means, a second mortgage will have it's own Closing Disclosure where the closing costs, etc., will be individually broken down - we're not required (or permitted) to do it again on the CD associated with the 1st mortgage.
The closing costs associated with the second mortgage will simply reduce the overall proceeds that we disclose in Section L., line 04 on the CD. As shown here in the CFPB's official example:
Adjustments and Other Credits
The amount of Proceeds disclosed in L04 should carry over into Adjustments and Other Credits.
Otherwise, Cash to Close will not come out correct. And this is clear in the regulation, see 1026.37(h)(1)(vii)
PROCEEDS FROM SUBORDINATE FINANCING OR OTHER
SOURCE. Funds that are provided to the consumer from the proceeds of subordinate financing, local or State housing assistance grants, or other similar sources are included in the amount disclosed [in Adjustments and Other Credits].
(paraphrased to convert legalese into English!)
What if Separate Disclosure is Exempt?
It does not matter. This will happen a lot - whether it's a HELOC or some sort of government-subsidized down payment assistance program. Those individual costs will be disclosed separately and the only thing we need to do is account for those in the "proceeds" above.
In Other News:
Did you hear the OCC is planning to issue guidance on higher LTV lending? The Comptroller's remarks on this and more from last night's conference on community reinvestment.
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