Upfront Mortgage Insurance Premium refunds are possible when a consumer is seeking to refinance a loan. The CFPB has given some guidance on what to do with UFMIP refunds on the Closing Disclosure. In the Section-By-Section Analysis to §1026.38(j)(2), the CFPB identifies three scenarios that may occur when dealing with refunds (including UFMIP refunds). Only one of these scenarios will necessitate the separate disclosure of the UFMIP refund on the Closing Disclosure. These three scenarios outlined by the Analysis will be analyzed individually.
1. The UFMIP collected during the consummation of the transaction will be reduced by the amount of the rebate or refund.
In this scenario the UFMIP refund will only be “disclosed” in the sense that the refund will reduce the new UFMIP fee in section B of the CD. The guidance for this is based on the “attributable to a specific closing cost” language in the Official Interpretation to 1026.38(j)(2)(vi)-1, and guidance from the Section-By-Section Analysis for 1026.38(j)(2). The Analysis states: “In some instances, the amount of the premium collected during the consummation of the transaction will be reduced by the amount of the rebate or refund, making any separate disclosure under proposed §1026.38(j)(2)(vi) redundant and confusing to the consumer.” Since the refund given in this scenario is attributable to a specific fee (the new UFMIP fee), the UFMIP fee disclosed in section B of the CD should be reduced by the expected refund amount.
2. The rebate or refund is sent directly to the consumer at an indefinite time after consummation.
In this case the UFMIP refund is not disclosed on the CD, and has no impact on any of the figures disclosed. The guidance from the CFPB in the Analysis states: “In other instances, the rebate or refund would be sent to the consumer at an indefinite time after consummation, i.e., after the funds sufficient to satisfy the debt were received and have cleared. This would mandate an additional, subsequent provision of the CD to inform the consumer that she received a check that likely was already deposited. Such a result would seem to provide little information or understanding of the transaction to the consumer.” Consequently, in this scenario the UFMIP refund is not disclosed on the CD.
3. The government agency or mortgage insurer is sending the rebate or refund to the closing agent to be used to reduce the amount due from the consumer at consummation.
In this situation the UFMIP refund is placed in the Other Credits section of section “L” on the CD. §1026.38(j)(2)(vi) says that “Other Credits” are “other items paid by or on behalf of the consumer and not otherwise disclosed pursuant to paragraphs (f), (g), (h), and (j)(2) or this section.” The Official Interpretation to 38(j)(2)(vi)-1 makes it clear that the CFPB focuses on whether “the credit is attributable to a specific closing cost” in determining whether or not the credit should be disclosed elsewhere pursuant to §1026.38(f) or (g).
The Section-By-Section Analysis for 1026.38(j)(2) also gives additional information regarding this scenario. It states: “The only instance where the rebate or refund would be disclosed to the consumer is where the government agency or mortgage insurer is sending the rebate or refund to the closing agent to be used to reduce the amount due from the consumer at consummation. In that event, the rebate or refund can be disclosed as any other credit from a party other than the creditor or seller under proposed §1026.38(j)(2)(vi).” Since, in this scenario, the refund is being given to reduce the general amount due from the borrower at consummation, the credit is not attributable to a specific closing cost. Because of this, the UFMIP refund would appropriately be placed in the “Other Credits” lines of Section L on the Closing Disclosure as a positive number.
The difficulty arising from populating the UFMIP refund in Section L of the CD is that the alternate CD does not have a Section L. This will become a greater problem in 2017 when FNMA/FHMLC will begin requiring the alternate CD for all refinance transactions. Currently, the CFPB has not issued any guidance on how to disclose UFMIP in a refinance transaction using the alternate forms.