APR
APR is supposed to be a scale for comparing loan costs amongst lenders. Question: If a finance charge is paid outside of closing (POC) by the borrower, it still gets included in APR as a cost to do the loan. Does this hold true if it is paid by the seller in a purchase transaction whether paid in or out of closing? My first thoughts would be yes, it is still a cost of doing the loan no matter who pays for it--but on the other hand, it is not a cost to the borrower? I can't find any guidance on this. Any thoughts?
You would have to look at reg Z 226.4 which defines many of the costs associated with the APR
Yes, I thought that was where I could find guidance as well, but upon checking this I found conflicting information. 226.4 says "It includes any charge payable directly or indirectly by the consumer AND imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit." That would mean only if the borrower paid it BUT: FRB Publication: Finance Charges for Consumer Credit under TILA says, "It includes any charge payable directly or indirectly by the consumer OR imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit." That changes the meaning entirely; no matter who pays it, it would be a finance charge if charged by the creditor.... This is why I am confused.
Lets try this..Give me examples of what you have
Purchase: Buyers closing costs including finance charges like points, have been negotiated to by paid by the seller. Do they need to be included in the APR as a finance charge? Same question if paid by the Lender? Same question if they were POC?
I believe any seller paid fee is NOT calculated in teh APR
The APR is really the cost of credit to the borrower
We rendered to counsel which chose to be on the conservative side for more than one reason. 1) The closing costs (no matter who paid or whether POC or not) are a cost of the extension of credit. 2) The interest rate is still driven by the cost of the extension of credit. 3) The interest rate is paid by the consumer indirectly. Which brings us back to ...payable directly or indirectly by the consumer.... ANOTHER Possible Problem: Some investors are requiring if the seller pays closing costs then in actuality the purchase price was lowered by the amount given to borrower, and thereby requires a new purchase contract and lower loan amount.