ARLINGTON, Va.—Credit unions are being reminded that under Regulation Z of the Truth in Lending Act they are obligated to fulfill lender credits disclosed on the loan estimate, even if the closing cost is lower than the credit union's loan estimate.
NAFCU Regulatory Compliance Counsel Loran Jackson pointed out that lender credits are used "to reduce the closing costs of mortgage loans which make it easier for members to purchase homes."
Under Regulation Z, the amount of lender credit listed on the loan estimate cannot be decreased, otherwise it would be a violation of good faith. However, it is not a violation to increase the lender credit from the estimate amount if closing costs end up being higher, Jackson said.
"In order to reduce the risk of obligating themselves to pay more lender credit than the amount of closing costs, some credit unions use the lower amount from the range of estimated closing cost on the loan estimate," Jackson said. "However, these credit unions are prepared to pay a higher amount if the closing costs are higher than the amount named in the loan estimate."