Docutech has received several inquiries for guidance on whether a prepaid interest credit (negative prepaid interest) may be used to reduce the amount disclosed for the Total of Payments (TOP) on the Closing Disclosure and the Total Interest Paid After Five Years (TP5Y) on the Loan Estimate.
The TRID regulatory text does not specifically address this issue. The provision describing the TOP states:
“The “Total of Payments,” using that term and expressed as a dollar amount, and a statement that the disclosure is the total the consumer will have paid after making all payments of principal, interest, mortgage insurance, and loan costs, as scheduled.” [12 CFR 1026.38(o)(1)]
While this part of the regulation does indicate that all payments of interest should be included in the calculation, the language does not specifically address whether an interest credit should be included, which would reduce the amount disclosed.
However, the official staff commentary to 38(o)(i) does indicate “[the] total of payments excludes charges that would otherwise be included as components of the total of payments if such charges are designated on the Closing Disclosure as paid by seller or paid by others. A seller or other party, such as the creditor, may agree to offset payments of principal, interest, mortgage insurance, or loan costs, whether in whole or in part, through a specific credit, for example through a specific seller or lender credit. Because these amounts are not paid by the consumer, they are excluded from the total of payments calculation.”
This interpretation specifically excludes charges that would otherwise be part of the TOP if they are paid by the seller or by others. Similarly, it would follow that credits that are provided by others would not be included in the TOP to reduce the amount.
This view is bolstered by the analysis to 12 CFR Pt. 1026, Supp. I, Paragraph 38(o)(1) – 1 regarding excluding specific credits from TOP:
“. . . some industry commenters stated that an agreement between the consumer and the seller or other party to offset a cost through a specific credit does not only apply to loan costs, but may also be used to offset other components of the total of payments including, for example, prepaid interest. Therefore, the Bureau revises comment 38(o)(1)-1 to clarify that the total of payments calculation on the Closing Disclosure excludes any component of the total of payments that is not paid by the consumer and offset by the seller or other party through a specific credit.” [82 FR 37748 (2017)]
Accordingly, Docutech’s default behavior is to exclude the interest credit from the TOP and TP5Y calculations. However, because this question is not directly addressed in the regulation, and because several clients have requested this amount to be included, we have a field that allows the interest credit to be included TOP and TP5Y calculations: “Lower TP5Y/TOP Amount by Including Negative Per Diem Interest” (Field 123481).
If you wish to change the TOP/TP5Y inclusion of prepaid interest credit for your account, please contact Client Support at 1.800.497.3584.