Advice Appreciated: Can Lender Decrease Credit After Rate's Locked?

5 Replies

Hi fellow BPers! After much learning and analyzing, we finally closed on our first home this week! Now we have a slice of paradise in Hawaii....but have some questions for those who are familiar with purchasing RE here, especially with a VA loan for active duty military.

Background: We completed the final walk-through on Sunday with our realtor. The escrow company sent a mobile notary to the home after our inspection to sign the papers. We signed the HUD estimate, deed, note, etc. of which we received all physical copies of. No one else was present other than the mobile notary and our realtor. We were told that recordation would not happen until Wednesday at the earliest. No keys.

Wednesday comes, and we are told that our loan's VA rider just got signed, so recordation will happen on Friday. No keys or finalized HUD.

Friday: Our realtor calls us to let us know that we can meet up to pick up the keys. We ask for the finalized HUD, which we received from our realtor. Escrow had sent it to the realtors, but not us. Upon analyzing the final HUD, we discovered that there was a big change in the amount of credit that the lender promised us. When we locked in the rate, our credit covered all of our closing costs with some principal reduction and cash back as well. The finalized HUD showed a significant reduction in the credit, so now we end up with no cash back and less principal reduction, to the tune of over a few thousand less than we were promised on all of the estimate HUDs (and GFE) that we have received up to this point. When we immediately asked about the credit reduction, our realtor deferred us to the mortgage broker, who deferred us to the Escrow officer, so we're now waiting for his answer.

We have been fortunate and blessed to be able to use the VA loan for our first home. However, there's been a few hiccups along the way, and we've spent a lot of time following up with people to make sure that the right things gets done on time because it is our first time through the rodeo. With the recent discovery, we feel like we are being actively deceived because we are seen as fresh meat or something similar. Had we not asked for the finalized HUD, we're not sure when we would have realized the switch. It's disheartening because everyone involved is already make thousands off this transaction (with the home prices in Honolulu so high).

BP community, can you please offer your advice/suggestions/etc. to the following:

1. Under RESPA, is it legal for the lender's credit (line 802 on HUD) to be decreased? Our understanding was that lines 801, 802, 803, and 1203 could not increase.

2. If this is not legal, what is our recourse? 

3. Since it seems that we have had to follow up on everything (a good habit, we think), including the finalized HUD, what other important documents, etc. should we make sure that we have on hand? We have kept copies of everything that we have signed so far.

4. We were under the impression that closing referred to the day that we signed all of the documents, we receive the keys, the day that the deed is recorded, and the day that we start paying property taxes and mortgage interest. This has not been the case for us. Can someone please clarify what the true typical timeline is. 

5. Lastly (and unrelated to the lender's credit issue), is it typical for the lender to require that the insurance policies start way before date of recordation? Our home and hurricane policies start 17 days before the actual date of recordation, so it seems like another plot to wring more money out of us by requiring insurance on a property for an extra 2 weeks when we don't actually own it. 

THANK YOU in advance for all your valuable input! 

In our research, we found the following on HUD's website (http://portal.hud.gov/hudportal/documents/huddoc?id=resparulefaqs422010.pdf):

"4) Q: The regulation states that while the borrower‘s interest rate is locked, the credit or charge for the interest rate chosen and the adjusted origination charge may not increase from the amount shown on the GFE. On a ?no-cost? loan that covers third-party costs where the rate has been locked, the GFE should show a credit for the interest rate chosen, in an amount sufficient to cover the estimated loan originator and third party fees. If the actual third party fees at closing are lower than stated on the GFE, may the loan originator reduce the amount of the credit to match

what is needed to pay the actual third party and loan originator fees?

A: No, the amount of the credit may not be reduced. The loan originator may choose to:

1) have the amount of the credit remain the same as stated on the GFE to cover additional closing costs previously not anticipated to be included in the ?no-cost? loan; 2) apply a principal reduction to the principal balance; 3) reduce the interest rate and the credit accordingly; or 4) have the credit remain the same, resulting in cash to the borrower." 

"Effective July 21, 2011, the Real Estate Settlement Procedures Act (RESPA) will be administered and enforced by the Consumer Financial Protection Bureau (CFPB)"

Hello Ally,

With a VA Loan you can't credit more than the borrower is putting down. I'm assuming you got a 100% loan but what was the VA funding fee on your loan? The most it could be is 2.15% so if you multiply that by whatever your loan amount was that would be the max you could get back in rebate.

From what I'm gathering your broker told you to ask the escrow officer why the rebate was cut.  Your broker should have been able to answer that question.  What was your rate and when was the loan locked?  Do you have a copy of the actual lock form to confirm when and what the price was when the loan was locked?

4)  Hawaii isn't what we call a wet state.  So when you sign your docs the broker and escrow and the lender still have to complete PTF's ( Prior to funding conditions )

If it was Texas for example when you sign your documents you would be done and get the keys same day or next.

5)  Technically the only thing you've paid for per your hud-1 is daily interest so the insurance policy can't be paid for until the loan has funded unless you paid all of your closing costs outside of the loan?

I hope this helps out and have a great weekend.

@Shaun Weekes  , thank you for your helpful response! 

We did get a 100% VA loan, and funding fee was 2.15% and rolled into the loan (purchase price of 550K with funding fee of 11,825). I locked the rate on July 17 (3.75% for 30-year) according to the Rate Lock Agreement I signed.

Regarding the closing costs, they were/are supposedly paid from the lender's credit, so we didn't write any checks during closing. When we asked about this issue, the mortgage broker said that the "date is set by the lender". 

Have a great weekend!

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