Cx1906 is provided pursuant to the following provisions of Iowa Code Ann. § 535.8(5):
“A lender who offers to make a loan with only those fees authorized by subsection 4 may also offer in exchange for the payment of an interest reduction fee to make a loan on all of the same terms except at a lower interest rate and with the lower payments resulting from the lower interest rate. Prior to accepting an application for a loan which includes a payment reduction fee, the lender shall provide the potential borrower with a written disclosure describing in plain language the specific terms which the loan would have both with the payment reduction fee and without it. This disclosure shall include a good faith example showing the amount of the payment reduction fee and the reduction in payments which would result from the payment of this fee in a typical loan transaction. A payment reduction fee which complies with this subsection may be collected in connection with a loan in addition to the fees authorized by subsection 4.”
It is not quite clear whether these provisions should require that the disclosure only reflect a “payment reduction fee” paid by the borrower or any “payment reduction fee,” regardless of payor. The referenced subsection 4 fees are those charged to the borrower and, when coupled with a history wherein subsection 4 once specifically referred to fees paid by other entities than the borrower (see IA Acts 1983 [70 G.A.] ch. 1272, § 19) and was changed to refer only to fees paid by the borrower (see 2008 IA Legis. Serv. ch. 1191, § 80), indicates that only a “payment reduction fee” paid by the borrower should be disclosed.
However, the plain provisions of subsection 5 do not qualify “payment reduction fee” by the payee (e.g. “payment reduction fees paid by the borrower”), thus a good argument can be made that any “payment reduction fee” should be factored into the disclosure.
We have decided to take a more conservative approach and will configure Cx1906 to disclose the entire amount of a “payment reduction fee” (aka “discount point”), rather than just the borrower-paid amount. This will be done by replacing the current field used in the “Payment Reduction Fee” of the “With Payment Reduction Fee” column (“Fee 802 Buyer Amount” [FI 305]) with “Total Expense for Line: 802” (FI 21856). In conjunction with this change, we will be removing the current print configuration condition “Borrower Paid Discount Point Indicator” (FI 18314) equals “Yes” and replacing it with “Discount Points/Fee Charged on Loan” (FI 81979) equals “Yes”.
Also, we will be modifying the first sentence of the document from stating “This disclosure explains the effects of your election to pay a payment reduction fee, which is known as loan discount points or loan discount fees” to “The loan you, the Borrower(s), have applied for, includes a ‘payment reduction fee,’ which is also commonly known as loan discount points or fees.”
Finally, we will be modifying the “Good Faith Example” comparison table on the document. Fields currently used in the “Without Payment Reduction Fee” column include:
- Loan Amount if Discount Points are Not Charged (FI 51257)
- What the Interest Rate Would Have Been if Discount Points Had Not Been Charged, Also Called Par Rate (FI 29944)
- Monthly P&I if Discount Points are Not Charged (FI 51258)
- ARM Margin if Discount Points are Not Charged (FI 51259)
- Arm Index if Discount Points are Not Charged (FI51260)
If FI 29944 and FI 51258 do not contain a value, a blank line will print in lieu of a value, so that the document can be completed manually. The other fields will populate with the standard discounted values if no data is sent for the undiscounted fields. Note also that the regular Loan Amount field (FI 1058) will be globally mapped into FI 51257 “Loan Amount if Discount Points are Not Charged” if FI 51257 is empty. We are also creating a global required field prompt for FI 132951 “Imported Monthly P&I if Discount Points are Not Charged” that triggers in lieu of the calculated “Monthly P&I if Discount Points are Not Charged” (FI 51258) when:
- Imported Monthly P&I if Discount Points are Not Charged (FI 132951) is EMPTY; and
- Property State (FI 1714) = IA (Iowa); and
- Loan Purpose (MISMO) (FI 1063) = ConstructionToPermanent; and
- Discount Points/Fee Charged on Loan (FI 81979) = Yes; and
- Add Construction Period to AM Schedule (FI 110464) = Yes; and
- Document Package Type (FI 18215) = Closing OR Initial Disclosure OR Redisclosure OR Pre-Closing
In connection with this new global required field prompt, if the loan is Construction-to-Permanent, the Monthly P&I and Reduced Monthly P&I will be marked by an asterisk (*), which refers to a new section that states: “* These amounts are based on an estimate of your first scheduled mortgage payment after the construction phase of your loan has ended.”
These changes are on Stage servers now for testing and will be in effect on October 2, 2019. If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.