Pub. 15 2018 Issue 2

24 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G N E W M E X I C O R E A L I Z E D R E A M S er would be. Secondly, this approach appears intended more for funds delivered at the closing table, as opposed to any gift delivered prior to or after closing as is arguably the case with a “gift of equity.” While the math may add up with this approach, it requires a stretch beyond the black-and-white regulatory language, and doesn’t quite seem to sync up with what the CFPB had in mind when disclosing ‘gifts’ on the Closing Disclosure. Regarding the second approach, while more straightfor- ward than approach # 1, it too requires a bit of fiction, as a “gift of equity” from the seller is not really applicable toward closing costs, and also requires a bizarre and unexplained positive offset in adjustments and other credits just to make the calculating cash to close table to balance out correctly. To make matters more troublesome, investors often limit any seller credit to a hard cap (such as 6% of the sales price), which could prove difficult for a large “gift of equity” being disclosed as a seller credit. The third approach appears to meet the investor require- ment that the “gift of equity” be contained within the closing documentation; however, that gift of equity doesn’t mathe- matically factor into any of the calculations on Page 3, which may lead auditors, examiners, investors or even the borrower themselves to overlook the fact that a gift of equity was even present in the transaction. It also may create a discrepancy be- tween the disclosed “sales price” on the closing disclosure and the “sales price” used to calculate LTV, which could give rise to questions of whether or not the disclosure is being presented in good faith. All the pros and cons being weighted, we feel like right now, the best approach to “a gift of equity” is in fact approach #3: to disclose the lower sales price for the Loan Estimate and Closing Disclosure, and then mention the “gift of equity” in an addendum to the Closing Disclosure. First of all, this is supported by the regulation. Secondly, while this may at first glance appear to cause issues with LTV, note that federal real estate lending standards and the sale price figure do not directly pertain to one another—all the lending standards say is, “For loans to purchase an existing property, the term “value” means the lesser of the actual acquisition cost or the estimate of value.” They do not contain any cross-refer- ence to the TRID rules. Disclosing a lower sales price on the TRID forms and then mentioning the “gift of equity” in an addendum, both satisfies any investor requirements and also makes the math simpler for a borrower to understand; both of which are essential underpinnings of TRID. We feel that these benefits outweigh any generalized concerns about “good faith” regarding the disclosed sales price. As with many things TRID, we continue to await guidance from the CFPB and other regulatory agencies on what the appropriate action for disclosing “gifts of equity” on closing dis- closures will be going forward. In the meantime, please be sure to stick with compliance alliance for updates, and let us know if you have any questions regarding this perplexing topic! n