Issue Date: RESPA News Monthly
January 2010, Posted On: 2/2/2010
In-Depth Reports
Late last year, many industry professionals predicted that the Department of Housing and Urban Development (HUD) would continue releasing more rounds of RESPA final rule frequently asked questions (FAQs) well into the New Year. This prediction was validated on Jan. 28 when HUD issued yet another revision to its already massive document. The guidance is intended to help industry members with questions as they implement the new Good Faith Estimate (GFE) and HUD-1 Settlement Statement forms. The forms went into effect on Jan. 1.
In this new round of FAQs, HUD added some new questions and made some revisions to existing FAQs. On Page 4, HUD added language to its answer for the following question: May a loan originator require the use of its affiliate for the tax service or flood certificate? HUD originally stated, “No, a loan originator may not require the use of its affiliate for tax service or flood certificate.” It has added the following: “But a loan originator may require the use of a non-affiliated provider.”
HUD added several new FAQs that addressed questions about the formatting of the new forms. It clarified the following:
- Changing the pagination of the GFE is not permitted;
- The GFE may be on legal size paper;
- Shading and margins may be changed on the HUD-1; and
- Lines may be added to the HUD-1 and a blank line within a series may be deleted from the form.
HUD also provided an answer to the question on whether an FHA loan correspondent is considered a broker or lender if he closes a loan in his name and is not table-funded by his sponsor, but rather is funded from his own funds or from a warehouse line of credit which he controls. According to HUD, in this scenario, the correspondent is considered to be a lender.
HUD also noted that if a mortgage broker provides the initial GFE and the lender accepts the loan, the lender cannot issue a new initial GFE, but rather is bound by the terms disclosed to the borrower by the broker.
In addition, there is a new FAQ that says loan originators cannot require borrowers to sign consent forms as a condition of issuing a GFE.
“A loan originator may not require a borrower to sign consents to verify employment, income or deposits as a condition of issuing a GFE as such a requirement may inhibit borrowers from shopping for the best loan by leading borrowers to believe that they are committed to obtaining a loan from that loan originator (see 24 CFR § 3500.7(a) (5) and (b) (5)),” HUD said. “However, the borrower may voluntarily sign consents prior to the issuance of the GFE to facilitate the loan process.”
On Page 8 of the FAQs, HUD clarified that if a borrower locks the interest rate after a GFE has been issued, a revised GFE must be issued within three days of the interest rate lock. This revised GFE would reflect the date that the interest rate lock is good through by putting this information in line 1 and putting “N/A” in line 4 of the “Important dates” section on Page 1 of the form.
“Any interest rate-dependent charges (block 2, line A and block 10 on the GFE) and terms that changed must also be updated on the revised GFE,” HUD said.
HUD also included more guidance on disclosing appraisal management fees. However, according to some chatter among lender compliance professionals on a real estate blog, this guidance may not be all that helpful.
“We have conflicting new FAQs,” one blogger wrote. “If an appraisal management company retains independent appraisers to perform the appraisal, the portion of the fee retained by the appraisal management company for management of the process of obtaining the appraisal may have to be folded into block 1 of the GFE and line 801 of the HUD-1. And, only the portion of the fee retained by the appraiser may be disclosed in block 3 and on line 804 of the HUD-1.”
On Page 26, the FAQ states:
“Q: What charges are part of the charge in block 1 of the GFE, ‘Our origination charge?’
A: Block 1, “Our origination charge” on the GFE contains all charges for origination services performed by or on behalf of a lender and/or a mortgage broker. Origination services includes, but is not limited to, the following: taking of the loan application, loan processing, underwriting of the loan, funding of the loan, acting as an intermediary between a borrower and lender, obtaining verifications and appraisals, and any processing and administrative services required to perform these functions.”
The phrases “services performed by or on behalf of a lender” and “obtaining verifications and appraisals,” are what seem to be troubling and one blogger wrote that HUD contradicts itself in a separate FAQ on Page 46. The FAQ reads:
“Q: If an appraisal is ordered through XYZ appraisal vendor management company and the appraisal is subcontracted to ABC Appraisal Company, what name is identified in line 804 on the HUD-1?
A: XYZ appraisal management company must be identified on Line 804.”
“So which is it? Is the portion of the fee for referring out the appraisal an administrative fee (and is this a violation of Section 8(a) and 8(b) of RESPA for taking a referral fee and taking a split of the appraisal fee without providing appraisal services), or is putting the appraisal management company on the HUD as the appraiser kosher? Note that if the title agent farms out the closing or a portion of the closing, the fee paid to the closer is disclosed on line 1102. Why should the appraisal be handled differently,” the blogger questioned.
Moreover, on Page 11, HUD addresses the question of whether or not a loan originator has to show an appraisal fee (or other fee) paid to a third party on the GFE and HUD-1, even if the loan originator wants to cover 100 percent of the fee. HUD says yes.
“The loan originator must list all required third-party services on the GFE and HUD-1 regardless of whether the charge is paid by the borrower, seller, loan originator or any other party (except for administrative and processing services),” HUD said. “If any party other than the borrower is paying for a service that was on the GFE, such as the appraisal fee, the charge remains in the borrower’s column on the HUD-1. A credit from the paying party to the borrower to offset the charge should be listed on the first page of the HUD-1 in lines 204-209 and, if the service was paid by the seller, lines 506-509 respectively.”
Regarding the written list of service providers that the loan originator must give to the borrower, on Page 15, HUD clarifies that a loan originator may include a statement on this document that the listing of a service provider on the “written list” does not constitute an endorsement of that service provider.
On Page 28, question seven asks if the yield spread premium can be shown as “paid outside of closing” on the GFE and the HUD-1? HUD says no.
“The yield spread premium is applied as a credit to the borrower in block 2 on the GFE and in line 802 on the HUD-1,” HUD noted.
HUD also provides more guidance on “changed circumstances,” the “Important dates” section, where to disclose an escrow waiver fee, condominium certificates, the disclosure of third-party services, transfer taxes, curing tolerances and seller-paid items.
HUD issued its first round of FAQs in August. At that time, the guidance spanned 16 pages and provided insight on a little less than 100 questions. Now, the document is 57 pages and includes a table of context that categorizes about 275 Q&As. For a copy of the latest FAQ report, go here.