The Department of Housing and Urban Development (HUD) has issued numerous revisions to its frequently asked questions (FAQ) report, which it created to address the hundreds of questions industry members have been wrestling with since HUD issued the RESPA final rule in November 2008. Initially released by HUD on Aug. 13, the first FAQ contained 89 questions that spanned 15 pages. Since then, HUD has added 164 more questions spanning 51 pages and sources have indicated they expect even more from HUD all the way into April 2010.
The FAQs specifically address questions surrounding the new Good Faith Estimate (GFE) and HUD-1 Settlement Statement, with the most recent draft issued on Nov. 19, which includes nine new FAQs. Just two days prior, HUD released an FAQ with 13 new questions. Many people are sitting on the edges of their seats waiting for their questions to be included with the periodically released revisions, while others scrutinize HUD’s answers and attempt to implement any changes into their systems to reflect the new guidance before the nearing Jan. 1 implementation deadline.
This report is addressing the Nov. 17 FAQ release, listing all the new FAQs issued on this date, plus a close look at some of the problems one attorney thinks some of the new FAQs might cause.
Can I change the font size?
According to Howard Lax, a partner with Mich.-based Lipson, Neilson, Cole, Seltzer & Garin PC, there are many places throughout the rule in which HUD hasn’t provided enough guidance. He worries that this will lead to inconsistencies on how various lenders and closing agents will fill out and interpret the line items.
These predicted inconsistencies are contradictory to one of HUD’s original reasons for issuing the RESPA final rule, which is to provide clarity and standardization throughout the industry for consumers, Lax said. HUD has indicated that other reasons for creating the new forms is to save the consumer money, provide an easier way for the consumer to shop for a loan and to avoid significant differences in settlement costs between the GFE and HUD-1.
One inconsistency Lax refers to is the point size of the form. HUD says the following in an FAQ: “The Rule does not state a minimum font size that may be used on the GFE, HUD-1 or HUD-1A.”
Why does the point size matter?
“It defeats the whole purpose of the disclosure in the first place,” Lax said. “It’s supposed to be clear. I think that you will have some that will be unreadable. The print will be so small, that the consumer won’t be able to read it.”
Lax added that with the number of services some loan originators will “stuff” into Block 3 on Page 2 of the GFE, “Required services that we select,” many will have to decrease the point size of the GFE font in order to keep the form to HUD’s mandated three pages. He is concerned that with a smaller point size than the current 9 point that the form has, some consumers, especially senior citizens, will confuse matching the fees to the correct service.
HUD’s early advice to add lines to the GFE would result in narrowing the spacing between lines. The choice HUD had was to either 1) allow for an attachment to the GFE or an additional page to list all of the services and fees, or 2) give the loan originator free range on the point size, with the danger that some may make it unreadable, Lax said.
HUD also permits loan originators to create more columns in Blocks 3 and 6 of the GFE. According to Lax, this advice comes too late to change loan origination software and forms now being printed and shipped to loan originators.
“I do not see how this is going to prevent our clients from going to 6 point print or smaller in the form,” he added.
What can I put on lines 104 and 105 of the HUD-1?
In another FAQ, HUD says lines 104 and 105 on the HUD-1 should be used to disclose “additional items owed by the borrower that are not on the GFE and items paid by the seller prior to settlement and being reimbursed to the seller from the borrower at settlement.” According to Lax, HUD should have restricted this statement to include a caveat that says, “according to the terms in the purchase agreement.”
“It’s a wild card type of thing,” Lax said. “HUD’s answer is open-ended. It says that basically, anything that you want to put in the 100 section, you can stick in the 100 section. If you have additional items that aren’t in the GFE, such as taxes, then they can probably go in this 100 series, rather than in the 210 section.”
Examples of fees that would be listed on lines 104 and 105 are the cost of a home inspection, or a situation where the buyer has agreed to reimburse the seller for a carpet that the seller installed.
According to Lax, the issue here is that by opening up these lines to anything, it will make the use of the form inconsistent.
“Part of the reason for having a HUD-1 in the first place was so that you have consistent settlement statements,” Lax commented. “You have consistency so that the consumer, if he knows there is a certain charge, would see it in a certain place. We are losing that consistency by the way HUD is giving us instruction in the FAQs to create certain wild cards.”
Lax said he recommends that HUD limit the purpose of lines 104 and 105.
“The purpose of that section is the gross amount due to the borrower: the contract sale price, the cost of personal property and the total of the settlement charges. It’s designed to be a broad-based general summary of the cost of the home before you have credits and debits and HUD isn’t using it for that,” he said.
Can I attach additional pages to the GFE?
Lax pointed out another FAQ that needs further clarification. HUD answers the following question on Page 9 of its FAQ report.
“May additional pages be added to the GFE to allow for all charges to be shown? If so, is it an addendum or an extension of page 2?”
HUD’s answer: “No. Additional pages or addendums may not be added to the GFE. The standardized GFE form set forth in Appendix C to the Rule is the required GFE form and must be provided exactly as specified, except that Blocks 3, 6 and 11 on Page 2 may be adapted to use in particular loan situations, so that additional lines may be inserted there, and unused lines may be deleted.”
Sources have indicated that in a live educational presentation, Ivy Jackson, director of the Office of RESPA and Interstate Land Sales at HUD, said you can add a page to the GFE in a situation where the lender or broker would like to include a statement explaining to the borrow why certain fees, which may be paid by the seller in a particular transaction, are listed as buyer-paid fees on the GFE. This is unconfirmed and HUD has not yet responded to RESPA News for clarification.
According to Lax, regardless of Jackson’s statement, the FAQ is contradicting other HUD guidance, because HUD mandates that you add a list of settlement services providers for the consumer. To clarify, Lax said what he believes HUD doesn’t want you to do is make references back and forth between pages on the GFE and other information provided in addition to the GFE.
“In other words, you are going to give them lists of providers, but you are not going to have references back and forth between the lists and the GFE and vice versa. You’re not going to write on the GFE, ‘see attached sheet’ and you’re not going to have on the list, ‘see Block so and so for fees,’” Lax noted. “You are also not going to help consumers to shop for settlement service providers by placing contact information and fees in your lists of available service providers.”
Who needs to keep information to justify changed circumstance?
In the Nov. 17 FAQ report, HUD added the following to its “changed circumstances” section:
“If there is a changed circumstance, do the mortgage broker and the lender both need to retain documentation of the reasons for any revised GFE?”
HUD’s answer: “Yes. If there is a changed circumstance resulting in a revised GFE, loan originators (mortgage brokers and lenders) both must retain documentation of the reasons for providing the revised GFE for no less than 3 years after settlement.”
According to Lax, this is unnecessary redundancy and contradictory to the rule itself.
“Only the party that’s issuing the revised GFE should be responsible for justifying that decision,” Lax opined. “I think it’s equally poor for HUD to impute knowledge of the broker to the lender and vice versa, because you’ve only got three days from the date that either one learns of the changed circumstances to issue the revised GFE.”
Lax added that in the rule, there is no requirement that both the lender and broker have to keep the GFE.
“If there are changed circumstances, either the broker or the lender can issue a revised GFE, but only one of them has to keep it — whoever issues it. HUD is not only adding the rule, they’ve only added half way. They’re saying both the lender and broker have to keep all of the information that would justify the changed circumstance, but they’re not saying you both have to keep the GFE,” Lax noted.
Another FAQ Lax commented on was regarding where to put homeowners association (HOA) transfer fees. According to HUD, the charge for this fee will not be disclosed on the GFE, unless it is a service required by the loan originator. The charge for the HOA transfer fee may be shown on a blank line in the 1300 series on the HUD-1.
According to Lax, this will “blindside” the buyer at the closing and could end up in a transaction that doesn’t close or an unhappy consumer. Lax said because this fee, which can sometimes be substantial, will not be disclosed on the GFE, by the time the consumer gets to the closing table, it’s going to be too late for the consumer to discuss this fee with the seller
Full list of new FAQs included in HUD’s Nov. 17 release:
Q. What is the minimum font size that may be used on the GFE, HUD-1 or HUD-1A?
A. The Rule does not state a minimum font size that may be used on the GFE, HUD-1 or HUD-1A.
Q. May additional pages be added to the GFE to allow for all charges to be shown? If so, is it an addendum or an extension of page 2?
A. No. Additional pages or addendums may not be added to the GFE. The standardized GFE form set forth in Appendix C to the Rule is the required GFE form and must be provided exactly as specified, except that Blocks 3, 6, and 11 on Page 2 may be adapted to use in particular loan situations, so that additional lines may be inserted there, and unused lines may be deleted. Lines may be added to Blocks 3, 6 and 11 vertically and horizontally.
Q. If a loan originator permits a borrower to shop for “Title services and lender’s title insurance,” should the “written list” consider “Title services and lender’s title insurance” one service or would all of the sub-services (such as conducting the settlement) be listed as separate services?
A. “Title services and lender’s title insurance” is a category that comprises services within the defined term “title service,” including conducting the settlement. Sub-services included within “Title service and lender’s title insurance” may not be listed as separate services on the “written list.”
Q. If there is a changed circumstance, do the mortgage broker and the lender both need to retain documentation of the reasons for any revised GFE?
A. Yes. If there is a changed circumstance resulting in a revised GFE, loan originators (mortgage brokers and lenders) both must retain documentation of the reasons for providing the revised GFE for no less than 3 years after settlement.
Q. If the borrower selects a service provider that was not selected or identified by the loan originator, is this considered a changed circumstance?
A. No, if the borrower selects a service provider that was not selected or identified by the loan originator it is not considered a changed circumstance.
Q. If the borrower initially selects a service provider not on the loan originator’s written list, but then chooses to use a service provider identified by the loan originator, is this a changed circumstance?
A. No. If the borrower initially selects a service provider not on the loan originator’s written list, but then chooses a service provider identified by the loan originator, this is not considered a changed circumstance.
Q. If a settlement agent revises a HUD-1 to cure a technical error or to reflect a tolerance cure, may the settlement agent mark the HUD-1 as “Amended” to distinguish from the original HUD-1?
A. Yes. If a settlement agent revises a HUD-1 to cure a technical error or to reflect a tolerance cure, the settlement agent may mark the HUD-1 as “Amended” to distinguish it from the original HUD-1.
Q. May a credit for a tolerance cure be listed on Page 1 of the HUD-1?
A. The cure for a potential tolerance violation may be listed as a credit to the borrower on Page 1 of the HUD-1 with a description of the service(s) the credit is applied to. If the tolerance cure is applied to the overall tolerance category “Charges That in Total Cannot Increase More Than 10%,” the tolerance cure credit may be listed as a “lump sum” amount on a blank line in Lines 204 thru 209 with a description of the tolerance category cure. The comparison chart on Page 3 of the HUD-1 should reflect the credit given for that service to cure the potential tolerance violation in the appropriate tolerance category.
Q. What are examples of charges that would be listed in Line 104 and Line 105 on the HUD-1?
A. Lines 104 and 105 on the HUD-1 are for additional items owed by the borrower that are not on the GFE and items paid by the seller prior to settlement and being reimbursed to the seller from the borrower at settlement.
Q. May a real estate agent rebate a portion of the agent’s commission to the borrower? If so, how should the rebate be listed on the HUD-1?
A. Yes, real estate agents may rebate a portion of the agent’s commission to the borrower in a real estate transaction. The rebate must be listed as a credit on Page 1 of the HUD-1 in Lines 204-209 and the name of the party giving the credit must be identified. Real estate agent or broker commission rebates to borrowers do not violate Section 8 of RESPA as long as no part of the commission rebate is tied to a referral of business.
Q. If the settlement agent hires or pays a third party to facilitate electronic filing, where would that charge be shown on the HUD-1?
A: If the settlement agent uses a third party to facilitate electronic filing and the third party is not a governmental entity, the service to facilitate electronic filing is considered an administrative or processing fee included in the charge for “title services” in Line 1101 on the HUD-1.
Q. If it is required by state or local law for a seller to pay a portion of the total charge for transfer taxes, on what line should the seller’s charge be listed on the HUD-1?
A. If it is required by state law for a seller to pay a portion of the total charge for transfer taxes and therefore not on the GFE, the seller’s charge should be listed as a charge in the seller’s column in Lines 1204 and 1205 on the HUD-1, and the total charges for transfer taxes should be itemized to the left of those columns (see HUD FAQ report for example).
Q. Where should the charge for the Homeowners Association (HOA) transfer fee be disclosed on the GFE and HUD-1?
A. The charge for the HOA transfer fee, unless it is a service required by the loan originator, need not be disclosed on the GFE. The charge for the HOA transfer fee may be shown on a blank line in the 1300 series on the HUD-1.
Tags: mortgage texas, Texas Mortgage