"Pricing discretion" means any judgmental adjustments to standard pricing to a borrower, as listed on rate sheets or given by a pricing engine. Anytime there can be pricing discretions allowed in a Lender’s business practice, there will be a heightened risk of Fair Lending violations.  Managing this risk has become increasingly important since numerous fines have been levied by the Department of Justice for discretionary pricing that was deemed to discriminate against race and ethnicity or their practices caused disparate impacts on minority borrowers.

There always seems to be some confusion over the definitions for “closing costs” and “prepaid finance charges” as they are relevant to mortgage lending. Closing costs are any costs that are paid in connection with a mortgage transaction besides the purchase price (or pay-off of the current mortgage(s), if a refinance) by either the buyer or the seller. Closing costs are all disclosed at the loan closing on the HUD-1 settlement sheet as required by TILA (Truth in Lending Act).

The Truth in Lending Act (TILA) and its implementing regulation, Regulation Z, require Lenders to disclose the Annual Percentage Rate (APR) on the Truth in Lending form.  The APR is defined as the cost of credit per year expressed as a percentage of the Loan.  It takes into consideration the closing fees that are defined as prepaid finance charges (i.e., Origination fees, discount points, underwriting fees, processing fees, etc.) and any Mortgage Insurance that is required to be paid throughout the life of the loan.  The reasoning behind the regulation was so that consumers could more easily compare loan offers between lenders to make a more economical choice.

There have been some rumblings about a HARP 3.0 (Home Affordable Refinance Program) that could be launched sometime this year, with the hopes of broadening the field of those eligible to receive the loan.  Under the current HARP program, the following requirements must be met to take advantage of its benefits: