(not third-party e.g., seller’s portion) are not included. With most of the criteria for determining whether a buydown is reflected on the LE and CD being dependent upon a credit contract, it is important to note that Regulation Z does not define a credit contract. But it is stated as being a contract that forms a legal obligation between the creditor and the consumer, as determined by applicable State law or other law. So whether or not a buydown agreement would be considered a credit contract or legal obligation between the creditor and consumer depends upon what “State law or other law” consider to be a legal obligation. Whether a buydown agreement is actually modifying the terms of a note or contract is going to depend on how it is structured and whether that note or contract ultimately reflects that lowered interest rate. Counsel should be included in any final determinations, as well as investor requirements. So where should the terms of the buydown be reflected in the LE and CD? Unfortunately, the commentary does not provide an “item-by-item” list of what parts of the LE and CD the buydown should be reflected in. The key requirement to remember is that if the buydown is required to be reflected, it must be reflected in the finance charge and all other disclosures affected by it. That includes the “Finance Charge” on page five of the CD (except for seller-paid buydown fees as those are considered seller’s points); the “Annual Percentage Rate” on page three of the LE and page five of the CD; the “Projected Payments” table on the first page of the LE and CD; and the “Product” on the first page of the LE and CD reflecting a step rate. There are different ways proper disclosure can be done, dependent upon the specific loan scenario. Sometimes a buydown is money going to the borrower from the seller, while other times, it is money going to the bank from the seller. These would be disclosed differently. So, the first question to ask: Who is giving money to whom, and for what purpose? A more common scenario for temporary buydowns is where the buydown is seller paid and is not being reflected in the note or credit agreement as it is contracted for between the buyer and the seller. How is this properly disclosed? Well, the most common way to disclose this, since it is not reflected in the note or credit agreement, is to disclose this as a Seller Credit. Since this is not considered discount points that either the buyer or the seller are paying to the bank, the 15 West Virginia Banker
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