One of the new questions asks whether a loan originator can require the use of its affiliate company for the tax or flood certificate. The updated RESPA guidance says that the loan originator may not require the use of its affiliate for the tax service or flood certificate, but a loan originator may require the use of a non-affiliated provider.
]]>The Frequently Asked Questions "FAQs" state that "All charges typically paid by the borrower must be disclosed on the Good Faith Estimate regardless of whether the charges will be paid by the borrower, seller, or other party?" The FAQ under Section 4 & 5 (see pages 34 & 35): Right to Cure Tolerance Violations has caused a great deal of confusion in some areas of the country on the issue of where to put the transfer tax fee. The confusion centers on whether the transfer tax fee has to be disclosed on the borrower's Good Faith Estimate even if the seller is paying for 100% of the transfer tax.
In some areas of the United States the local custom or tradition in a real estate closing has been to make the seller pay for the entire or a portion of the transfer tax or there is language in the real estate contract stating the seller is to pay for all or part of the transfer tax.
The answer is if the seller is paying for the entire transfer tax or a portion of the transfer tax then it must be listed on the borrower's Good Faith Estimate (GFE) and must be shown on the HUD-1 on the borrower's charge column on page 2 of the HUD-1 settlement statement. A credit may be given from the seller to the borrower on page 1 of the HUD-1 to offset the charge. The only exception to this is if state or local law requires the seller pay for the transfer tax. If state law or local law specifically requires the seller to pay all or a portion of the transfer tax then that portion was not required to be on the Good Faith Estimate.
Please remember though that a transfer tax, unless state or local law requires that it be paid by the seller, is a zero tolerance charge and must be disclosed on the borrower's GFE and on the HUD-1. It should also be noted that a lender may overestimate the transfer tax charge as reductions are not considered tolerance violations under the new RESPA guidelines.
An electronic copy of HUD's Settlement Cost Booklet can be sent to the borrower electronically in lieu of the printed booklet.
]]>HUD ANNOUNCES NEW RESPA OUTREACH CAMPAIGN
Live interactive online presentations designed to offer ‘plain English’ on a host of compliance issues
WASHINGTON – In an effort to address industry concerns about how to implement new mortgage rules due to take full effect on January 1st, the U.S. Department of Housing and Urban Development today announced a series of live interactive online presentations intended to increase readiness among mortgage professionals.
“We’ve been working overtime to answer questions and provide training to as many organizations as we can,” said David Stevens, HUD Assistant Secretary for Housing/Federal Housing Commissioner. “On the eve of these new requirements, I want to accelerate our focus with a heavy dose of plain English and customer service to help the industry prepare.”
Beginning today, HUD will participate in a series of live online presentations to explore RESPA’s new requirements. Led by Vicki Bott, HUD’s Deputy Assistant Secretary for Single Family Housing, the online meetings are also intended to allow industry professionals to ask questions about implementing the new rules.
The following is the current schedule of HUD’s live online presentations*:
•December 3rd at 2 p.m.
•December 7th at 11 a.m.
•December 10th at 2 p.m.
•December 11th at 11 a.m.
•December 16th at 1p.m.
We applaud HUD for delaying enforcement of the new rule for 4 months it still exposes companies that do not implement the new changes to potential civil litigation issues for not complying with the new rule.
Another RESPA attorney said it best: "Better pin on your badge and strap on your gun looks like HUD will look to the plaintiff's bar to bring the heat in the first 4 months."
Below is a copy of the HUD press release:
]]> HUD ANNOUNCES RESTRAINT IN RESPA ENFORCEMENT FOR FIRST FOUR MONTHS OF NEW RULEWASHINGTON - The U.S. Department of Housing and Urban Development (HUD) today announced that for the first four months of 2010, the staff of the Mortgagee Review Board (MRB) will exercise restraint in enforcing new regulatory requirements under the Real Estate Settlement Procedures Act (RESPA), due to take full effect on January 1. The MRB instructed its staff to exercise such restraint in considering an action against FHA-approved lenders who have demonstrated that they are making a good faith effort to comply with RESPA's new requirements.
In addition, HUD is asking other federal and relevant state enforcement agencies to exercise the same 120-day restraint in enforcement for non-FHA originators and other settlement service providers who demonstrate the good faith effort to implement RESPA's new rules. In determining whether a mortgagee has made a good faith effort, MRB staff will consider whether the mortgagee has relied on the new RESPA rule and other written guidance issued by the Department, and the extent to which the mortgagee has made sufficient investment and commitment in technology, training, and quality control designed to comply with the new rule.
"We will work with those who are making an honest effort to work with us as we implement these important new consumer protections," said HUD Secretary Shaun Donovan. "While we will not delay implementation of RESPA's new requirements, we are sensitive to the concerns of the industry as it integrates these new rules into their day-to-day business practices."
On January 1, 2010, HUD will require that lenders and mortgage brokers provide consumers with a standard Good Faith Estimate (GFE) that clearly discloses key loan terms and closing costs. Closing agents will also be required to provide borrowers a new HUD-1 Settlement Statement that clearly compares consumers' final and estimated costs. The new RESPA rule became effective on January 16, 2009, but provided a one-year transition period for the mortgage industry to incorporate these changes. HUD will continue to work with the mortgage industry during this period, including providing a comprehensive set of frequently asked questions (FAQs) on its website.
By improving the disclosures borrowers receive when applying for a mortgage, and by promoting comparison shopping, HUD believes its new RESPA regulation will save consumers an average of nearly $700 in mortgage costs.
Ivy Jackson said this is not accurate and states that "while true that any YSPs are now shown as a credit to the borrower in Box 2 under "Your Adjusted Origination Charges." The rule eliminates the 1% cap on origination charges for FHA loans.
Based on the wholesaler bankers example and a $100,000 loan, if the broker is going to make $1500.00 on the loan and there is a $500 YSP; Block 1 or "Our Origination Charge" would show $2000.00, Block 2, would show $500, resulting in an "Adjusted Origination Charge" of $1500.00."
We don't know what precipitated this possible delay by HUD but the real estate industry has stepped up their criticisms on the new rule, including a recent letter sent to HUD by numerous trade organizations, issues with the new Truth In Lending Act form "TILA" integration, and other federal enforcement agencies concerns about the transparency of the new HUD-1 have forced HUD to re-evaluate parts of the new rule. Of course one of the other problems is that many in the real estate industry are still very much unaware or uneducated on the new RESPA Rule.
UPDATED at 10:39 PM:
Assistant Secretary of Housing David Stevens informed me that there will not be a delay in the implementation of the Jan. 1, 2010 RESPA rule. The information we received came from numerous credible sources in Washington, D.C. but it appears that the information regarding the delay according to HUD will not occur.
UPDATE #2 AT 11:53 ON THURSDAY:
Kelly McCarel atRESPA NEWS.COM is now confirming "that HUD has been holding private meetings about the possibility of a delay" according to their sources.
However, Assistant Secretary of Housing Dave Stevens stated to us in an email at 3:00AM this morning that "There have been all sorts of discussions on readiness but a delay on implementation has not been one of them. The industry needs to be prepared for January 1st."
Stay tuned.............
Latest Update November 13, 2009
HUD Announced a 120 day (4 month) delay in HUD Enforcement of the new rule or as HUD calls it a "Restraint in Enforcement."
The CFPA bill passed the House Financial Services Committee by a vote of 39 to 29 which was a major victory for Rep. Barney Frank (D). Many observers believe the HVCC will still be quickly phased out even if the CFPA doesn't win as congress is quickly growing weary of the consumer and industry complaints about some Appraisal Management Companies (AMC). Consumers, local taxing bodies, and some in the real estate industry point to increased appraisal fees and unqualified appraisers from distant states appraising local property with unsubstantiated valuations which they believe is further deteriorating the real estate markets across the United States.
]]>Mike Anderson (President of Essential Mortgage, Louisiana Mortgage Lenders Association Past President, and the National Association of Mortgage Brokers Co-Chair of Government Affairs) testified before the Federal Reserve Board today on this issue. To see Mike Anderson's testimony today please click here.
]]> The Federal Reserve Board highlights:•Improve the disclosure of the annual percentage rate (APR) so it captures most fees and settlement costs paid by consumers;
•Require lenders to show how the consumer's APR compares to the average rate offered to borrowers with excellent credit;
•Require lenders to provide final Truth in Lending Act (TILA) disclosures so that consumers receive them at least three business days before loan closing; and
•Require lenders to show consumers how much their monthly payments might increase, for adjustable-rate mortgages.
The Board will also work with the Department of Housing and Urban Development to make the disclosures mandated by TILA, and HUD's disclosures, required by the Real Estate Settlement Procedures Act, complementary; potentially developing a single disclosure form that creditors could use to satisfy both laws.
In developing the proposed amendments, the Board recognized that disclosures alone may not always be sufficient to protect consumers from unfair practices. To prevent mortgage loan originators from "steering" consumers to more expensive loans, the Board's proposal would:
•Prohibit payments to a mortgage broker or a loan officer that are based on the loan's interest rate or other terms; and
•Prohibit a mortgage broker or loan officer from "steering" consumers to transactions that are not in their interest in order to increase the mortgage broker's or loan officer's compensation. "
HUD-1 GENERAL
Question:
May separate HUD-1s be given to the seller and borrower with only their own information on each HUD-1?
Answer:
Yes. It is permissible to have two separate HUD-1s in a transaction; one with the buyer's credits and charges only, and one with the seller's credits and charges only. The settlement agent must provide the lender with a copy of both HUD-1s when the borrower's and seller's copies differ.
Question:
If an addendum is used, can the following text be added to the HUD-1: "See attached addendum for additional information"?
Answer:
It is acceptable to insert such a reference where appropriate on the HUD-1 for the purpose of making it clear to the parties what the completed HUD-1 comprises.
Question:
How should payments by the seller or real estate agent that are for settlement services included on the Good Faith Estimate (GFE) be shown on the HUD-1?
Answer:
If a seller or real estate agent pays for a charge that was included on the GFE, the charges should be listed in the borrower's column, with an offsetting credit reported in Lines 204-209 of the HUD-1, identifying the party paying the charge. For a seller-paid charge, the charge should also be listed in Lines 506-509. For a charge paid by the real estate agent, the name of the person paying the charge must also be listed.
Question:
The instructions in Appendix A to Part 3500 for completing the HUD-1 indicate how fees that are paid outside of closing should be designated on the HUD-1. Can the convention "P.O.C. (B*) be used instead, with the following footnote at the bottom of the page: *Paid outside of closing by borrower"?
Answer:
Yes, the HUD-1 Instructions require that P.O.C. items be listed on the HUD-1 by the settlement agent with an indication whether P.O.C. items are paid by the borrower, seller, or other party by marking the items paid for by whoever made the payment identified in the parentheses, such as P.O.C. (borrower) or P.O.C. (seller) as long as a footnote is added to the HUD-1 clearly noting the party paying for the items such as *Paid outside of closing by borrower or *Paid outside of closing by seller.
Question:
Where should fees for processing and administrative services be listed on the HUD-1 Settlement Statement?
Answer:
Processing and administrative services are services to perform origination and title service functions. For the loan origination function, charges for such services are included in the total on Line 801. For the title services function, charges for such services must be included in the title underwriter's or title agent's charge and are shown in the total on Line 1101. Examples of processing and administrative services include, but are not limited to, the following: document delivery, document preparation, copying, wiring, preparing endorsements, document handling, and notarization.
Question:
Where should the survey fee be disclosed on the HUD-1?
Answer:
The location of the survey fee on the HUD-1 is determined as follows:
(a) if the loan originator required a survey as a condition of the loan and the borrower selected the settlement service provider, the charge for the survey must be listed on a blank line in the 800 series in the borrower's column;
(b) if the loan originator required a survey as a condition of the loan and the borrower selected the settlement service provider, the charge for the survey must be listed as part of the total in Line 1301 of the HUD-1 and itemized as applicable;
(c) if a survey was required to issue a lender's or owner's title insurance policy, the charge for the survey is part of the charge in Line 1101 and must be further itemized if performed by a third party;
(d) if the borrower elected to obtain a survey that was neither required by the loan originator nor required to issue a lender's or owner's title insurance policy, then the charge is listed in the borrower's column on a blank line in the 1300 series.
Question:
May an addendum be added to the HUD-1 to list additional fees and other information?
Answer:
Yes, an additional page may be attached to the HUD-1 to add sequentially numbered lines as needed to accommodate the complete listing of all items required to be shown on the HUD-1, and for the purpose of including customary recitals and information used locally in real estate settlements (for example, breakdown of payoff figures, a breakdown of borrower's total monthly mortgage payments, check disbursements, a statement indicating receipt of funds, applicable special stipulations between buyer and seller, and the date funds are transferred).
Question:
The General Instructions indicate that if a charge has been shown on the GFE as payable by the borrower but at closing it is paid by another person, including by the loan originator in a loan other than a no-cost loan, the fee should be shown in the borrower's column on the HUD-1 and be offset by listing a credit to the borrower on lines 204-209 of the HUD-1. If a HUD-1A form is being used, lines 204-209 do not exist. How should the credit be shown on a HUD-1A form?
Answer:
Use of the HUD-1A form is an optional form to be used by the settlement agent in a transaction in which there is not a seller and as otherwise appropriate. If the use of a HUD-1A form is not appropriate, such as if there is a credit given by a loan originator or other party, the settlement agent must use the HUD-1 form.
Question:
In a transaction that is closed in the mortgage broker's name but is table funded by the lender, must the name and address of the funding lender be shown in Section F (consistent with definition of "lender" under 24 CFR §3500.2(b)) or may the mortgage broker's name and address be shown?
Answer:
The HUD-1 Instructions for Section F state that the name and address of the lender must be stated in this section. Therefore the name of the lender and not the mortgage broker must be stated in Section F on the HUD-1.
Question:
If the seller has agreed to pay charges that were disclosed on the borrower's GFE, how are these charges listed on the HUD-1?
Answer:
The charges for any service which is disclosed on the borrower's GFE is listed in the borrower's column on the HUD-1. The amount charged to the borrower is offset by a credit in that amount in Lines 204-209 and by a charge to the seller in that amount in Lines 506-509 on page 1 of the HUD-1.
LOAN QUESTIONS IN 200 SERIES OF HUD-1
Question:
When the borrower is using a second loan to help finance the purchase of a home, may both loans go on the HUD-1?
Answer:
No, each loan must have a separate GFE and a separate HUD-1. The principal amount of the second loan must be listed outside the borrower's column with a brief explanation on Line 204-209 of the HUD-1 for the primary loan. If the net proceeds of the second loan are less than the principal amount, the net proceeds may be listed on the same line int eh borrower's column.
Question:
What types of loans can be shown on Line 202 of the HUD-1?
Answer:
Line 202 of the HUD-1 is used to state the amount of the loan in the mortgage transaction. The loan could be a purchase money loan, refinance, home equity loan, construction loan, or a manufactured home purchase loan.
REAL ESTATE COMMISSION QUESTIONS IN 700 SERIES OF HUD-1
Question:
If a real estate agent is retaining some of the borrower's earnest money deposit as part of the agent's commission, is that amount listed in the 700-series on the HUD-1?
Answer:
Yes, if a real estate agent is retaining some of the borrower's earnest money deposit, the amount of the earnest money deposit applied towards the commission and the party holding the earnest money must be identified on Line 704 of the HUD-1 as Paid Outside of Closing or P.O.C. Only the amount of the commission disbursed at settlement is entered in the columns on Line 703.
LOAN QUESTIONS IN 800 SERIES OF HUD-1
Question:
If a borrower pays some of the origination charge prior to closing, how should it be disclosed on the HUD-1?
Answer:
The full charge for origination, except for any charge for the specific interest rate chosen (points), must be shown on Line 801 of the HUD-1 to the left of the borrower's column. If the borrower pays some of the origination charge before settlement, an offsetting credit in that amount is shown on the first page of the HUD-1 in Lines 204-209. Lines 801, 802, and 803 of the HUD-1 may not contain any "Paid Outside of Closing" (P.O.C.) items.
Question:
How is a payment from the lender to the mortgage broker that will be "paid outside of closing" (P.O.C.) shown on the GFE and HUD-1?
Answer:
All payments from a lender to a mortgage broker must be shown as a credit to the borrower in Block 2 of the GFE and on Line 802 of the HUD-1. These payments may not be shown as P.O.C.
Question:
What fees are to be recorded in the 800 series of the HUD-1, beginning on Line 804?
Answer:
When the loan originator selects the settlement service provider, fees for third party settlement services that are required by the loan originator are recorded in the 800 series beginning on Line 804. These third party services and fees most often include appraisals, credit reports, flood searches, tax service, and governmental loan program charges, such as VA, FHA, Rural Housing Service, or state bond loan programs. Processing or administrative services are part of "Our origination charge" and may not be separately itemized. The HUD-1 Instructions for the 800 series explain which fees go on which lines.
QUESTIONS IN 900 SERIES OF HUD-1
Question:
On some loans a borrower will make a full regular payment within less than a month and receive an interest credit at closing. May the interest credit, instead of the collection of interim interest, be listed in Line 901 on the HUD-1?
Answer:
Yes, an interest credit may be listed (as a negative number) in Line 901 on the HUD-1.
ESCROW QUESTION IN 1000 SERIES OF HUD-1
Question:
May additional lines be added to the 1000 series on the HUD-1?
Answer:
Yes, additional lines may be added to the 1000 series if needed. If lines are added, Line 1007, Aggregate Adjustment, must be moved down (and renumbered accordingly) so that it remains the last line item in the series.
TITLE QUESTIONS IN 1100 SERIES OF HUD-1
Question:
Where should the Lender's title insurance premium be disclosed on the HUD-1?
Answer:
The amount of the premium for Lender's title insurance and related endorsements must be included in the total for title services and lender's title insurance on Line 1101 of the HUD-1. The charge for the Lender's title insurance policy and its related endorsements must also be itemized on Line 1104 with the charge to the left of the columns.
Question:
If a borrower selects an attorney to represent the borrower's personal interests at settlement, where is this attorney's fee disclosed on the HUD-1?
Answer:
If a borrower selects an attorney to represent the borrower's personal interests at settlement, and the service provided by that attorney is separate from the functions necessary to conduct the closing, provide title services or issue the lender's title insurance policy, this attorney's charge may be separately listed on a blank line in the 1100 series in the borrower's column along with the name of the attorney and type of service provided. Accordingly, the amount of this attorney's fee should not be included in the charge listed on Line 1101.
Question:
How is the premium recorded on the HUD-1 if the borrower purchases an enhanced owner's title insurance policy, rather than a basic policy?
Answer:
Regardless of whether the borrower chooses to purchase a basic or an enhanced owner's title insurance policy, the premium must be listed in the borrower's column on Line 1103.
Question:
If the title agent conducts the settlement, should the charge for conducting the settlement be included in Line 1101 of the HUD-1, with the itemized charge listed outside the column on Line 1102?
Answer:
Yes, the charge for conducting the settlement must be included in the total on Line 1101. If the charge is paid to a third party, the charge must be itemized outside of the columns on Line 1102.
Question:
Where do I put the charge for the title commitment on the HUD-1?
Answer:
The term "title services" is defined to include any service involved in the preparation and issuance of the title commitment. See 24 CFR 3500.2. On the HUD-1, the charge to the borrower for title services, including the charge for services related to the title commitment, must be included in the total in the borrower's column on Line 1101. If a third party prepares and issues the title commitment, the disbursement for this service also must be itemized outside the columns on a blank line in the 1100 series.
Question:
What items are included in the amount disclosed on Line 1101 of the HUD-1?
Answer:
Line 1101 is the total of the charges for "Title services and Lender's title insurance," which includes: all charges for conducting a settlement (Line 1102); any premiums paid for lender's title insurance and its related endorsements (Line 1104); all charges for title searches and examinations; and charges for all other services itemized in the 1100 series if those services are included in the definition of "title service." The total on Line 1101 should not include the amount of any premium for owner's title insurance and its related endorsements, which must be listed in the columns on Line 1103.
Question:
How is the charge for conducting the settlement disclosed on the HUD-1?
Answer:
The charge to the borrower for conducting the settlement must be included in the total stated in the borrower's column on Line 1101 of the HUD-1. In addition, the total in the borrower's column on Line 1101 must include any amount for conducting the settlement that was paid by another person on behalf of the borrower. In such a case, an offsetting credit must be shown on page 1 of the HUD-1. If the seller paid the amount, a credit to the borrower in that amount must be listed in Lines 204-209, and a charge to the seller must be listed in Lines 506-509. If another person pays the amount an offsetting credit is reported in Lines 204-209, identifying the person paying the charge.
Any separate charge to a seller for conducting the settlement is listed in the seller's column in Line 1102. The borrower's charge for conducting the settlement should be itemized outside the borrower's column in Line 1102.
Question:
If state law requires further itemization of title service or title insurance related fees such as a commitment fee or fees for endorsements to a title insurance policy, how should these fees be listed on the HUD-1?
Answer:
If a state law requires further itemization of title services or title insurance related fees than required under RESPA, those fees may be itemized on blank lines in the 110 series of the HUD-1 with the charge listed outside the borrower's column. Endorsements to a title insurance policy may also be listed in Lines 1103 and 1104 as applicable, with the charge listed outside the borrower's column.
GOVERNMENT FEES QUESTIONS IN 1200 SERIES OF HUD-1
Question:
What items are included in the amount listed on Line 1201 of the HUD-1?
Answer:
Line 1201 is the total of the government recording charges. Examples of such charges include but are not limited to state and local fees for recording the deed, mortgage, deed of trust, releases, and any other instrument or document recorded to preserve marketable title or to perfect the lender's security interests in the property.
Question:
What items are included in the amount listed on Line 1203 of the HUD-1?
Answer:
Line 1203, "Transfer taxes" is the total of state and local government fees imposed for mortgages and home sales.
FEE QUESTIONS IN 1300 SERIES OF HUD-1
Question:
What charges are shown in the 1300 series of the HUD-1 settlement statement?
Answer:
The 1300 series of the HUD-1 settlement statement is used to record the charges for settlement services that are disclosed in Block 6 of the Good Faith Estimate as well as charges that are not disclosed on the GFE. Examples of some of these services may include charges for home inspections, radon inspections, and homeowners warranty.
Question:
What charges are shown on Line 1301 of the HUD-1?
Answer:
Line 1301 is the total of all charges for third party settlement services that the loan originator required but for which the borrower was permitted to select the service provider. The charge on Line 1301 is shown in the borrower's column. All charges included in the total amount on Line 1301 is shown in the borrower's column. All charges included in the total amount on Line 1301 must be separately itemized outside of the columns in Lines 1302 and subsequent lines, identifying the type of service, the name of the provider, and the amount of the charge.
Question:
If the loan originator does not allow the borrower to shop for any required services, can the settlement agent begin the itemized list of additional miscellaneous settlement charges in the 1300 series on Line 1302?
Answer:
Yes, if Line 1302 and additional sequentially numbered lines will not be needed to record required services that the borrower can shop for, the settlement agent may list the itemized miscellaneous settlement services on Line 1302.
Question:
If a loan originator permits a borrower to shop for services typically listed in Block 3 on the GFE, such as tax service or flood certificate, where should the services be listed on the HUD-1?
Answer:
If a loan originator permits a borrower to shop for services typically listed in Block 3 on the GFE, such as tax service or flood certificate, the services would instead be listed in Block 6 of the GFE. The total amount charged for these services is listed in the borrower's column in Line 1301, and the charges are itemized outside the columns in Line 1302 and following lines on the HUD-1.
We expect HUD to release additional FAQs to the public in the very near future to the public so stay tuned to this blog as we will add as RESPA adds to this rule.
For more information please contact the Sterbcow Law Group LLC or visit www.respaattorneys.com
If you have questions or comments please feel free to ask in our RESPA Blog comment section.
Question 1:
How are courier and overnight delivery fees shown on the HUD-1 Settlement Statement?
Answer:
Courier and overnight delivery fees are considered to be fees for administrative or processing serves. They are part of a primary service, such as the origination service or title service, and may not be separately itemized.
Question 2:
Does voluntarily using the HUD-1 in a real estate transaction that otherwise is not subject to RESPA result in RESPA applying to the transaction?
Answer:
No, using the HUD-1 form does not subject a transaction to coverage under RESPA.
Question 3:
Does "conducting a settlement" (from the definition of "title service") have the same meaning as "conducting the closing"?
Answer:
Yes. The terms "conducting a settlement" and "conducting the closing" have the same meaning under HUD's RESPA regulations and are subject to identical requirements under the regulations.
SELLER-PAID ITEMS ON THE HUD-1 SETTLEMENT STATEMENT
Question:
What if at the closing the seller is paying for a settlement service that was listed on the Good Faith Estimate (GFE), such as the Owner's title insurance policy? How is this shown on the HUD-1?
Answer:
If the seller is paying for a service that was on the Good Faith Estimate (GFE), such as Owner's title insurance, the charge remains in the borrower's column on the HUD-1. A credit from the seller to the borrower to offset the charge should be listed on the first page of the HUD-1 in Lines 204-209 and Lines 506-509 respectively.
REAL ESTATE COMMISSION QUESTION IN 700 SERIES OF HUD-1
Question:
Where do I put the percentage of commission to the real estate agents on the HUD-1?
Answer:
The percentage used to compute the sales commission has been removed from the HUD-1 to better reflect current practices in the real estate industry. The total amount of the commission to each real estate broker or agent must be shown on Lines 701-702. The amount of the commission disbursed at settlement must be shown inside the columns on Line 703.
LOAN QUESTIONS IN 800 SERIES OF HUD-1
Question:
What charges are included in "Our origination charge" on Line 801 of the HUD-1?
Answer:
Line 801 includes all charges received by a loan originator, except for any additional charge ("points") for the interest rate chosen on the loan. The amount on Line 801 also includes all amounts received for any service, including administrative and processing services, performed by or on behalf of the lender or any mortgage broker. (The amount on Line 801 is not listed in the columns.)
Question:
If an attorney prepares loan documents for a lender, where does that charge go on the HUD-1?
Answer:
Loan document preparation fees are included in the charge on Line 801 of the HUD-1. If a third-party provider, such as an attorney, is compensated for document preparation, the payment to the third party must be itemized on a blank line in the 800 series with the amount listed outside of the column.
Question:
How does a settlement agent show a "no cost" loan on the HUD-1?
Answer:
In the case of the "no cost" loans where "no cost" refers only to the loan originator's fees, a credit equal to the amount in Line 801 on the HUD-1 must be given in Line 802 of the HUD-1 so that the adjusted origination charge in Line 803 of the HUD-1 equals zero. In the case of "no cost" loans where "no cost" encompasses some or all third party fees and the origination charge, a credit should be listed in Line 802 of the HUD-1 to offset all fees encompassed in the "no cost" loan, resulting in a negative number for the adjusted origination charge on Line 803 of the HUD-1. The third party services covered by this offset must be itemized and listed in the borrower's column.
INSURANCE QUESTIONS IN 900 SERIES OF HUD-1
Question:
Where is the charge for flood insurance shown on the HUD-1? What if the borrower pays it prior to settlement?
Answer:
Flood insurance should be disclosed on Line 904 of the HUD-1 with the charge in the borrower's column. If the borrower pays the insurance prior to closing, the item should be shown on Line 904 of the HUD-1 noted as "Paid Outside of Closing" or "POC" with the charge to the left of the column.
ESCROW QUESTION IN 1000 SERIES OF HUD-1
Question:
Does Line 1001 reflect the total of all other lines in the 1000 series?
Answer:
Yes, Line 1001 is the total of all escrow items contained in the 1000 series of the HUD-1.
TITLE QUESTIONS IN 1100 SERIES OF HUD-1
Question:
What are title services?
Answer:
The term "title services" includes:
1. Any service involved in the provision of title insurance, including but not limited to:
a. title examination and evaluation
b. preparation and issuance of title commitment
c. clearance of underwriting objections
d. preparation and issuance of policies
e. all processing and administrative services required to perform these functions
(ex. document delivery, preparation and copying, wiring, endorsements, and notary);
AND
2. The service of conducting a settlement.
Question:
Where should the settlement agent list the commitment fee, wire fee and other miscellaneous title fees on the HUD-1?
Answer:
The commitment fee, wire fee, and other miscellaneous fees are included as processing and administrative fees that are part of the definition of "title services." All of these types of fees must be included in charges shown on Line 1101 of the HUD-1, and are not to be itemized separately.
Question:
Are document preparation fees included in "title services" or would they appear as separate line item charge in the borrower's column?
Answer:
Document preparation fees are part of administrative and processing fees which are included in the charge in Line 1101 of the HUD-1 and may not be separately itemized.
Question:
Are delivery fees included in "title services" and therefore included in Line 1101 of the HUD-1?
Answer:
Yes, delivery fees are included in the definition of "title services" and are included in the charge shown in Line 1101 of the HUD-1.
Question:
Are notary fees included in "title services" and therefore included in Line 1101 of the HUD-1?
Answer:
Yes, notary fees are included in the definition of "title services" and are included in the charge shown in Line 1101 of the HUD-1.
Question:
What is the Lender's title policy limit on Line 1105 of the HUD-1?
Answer:
The Lender's title policy limit, Line 1105 of the HUD-1, is the maximum dollar amount of coverage available under the policy.
Question:
Where should the quote for the Lender's title insurance policy premium be disclosed on the HUD-1?
Answer:
The Lender's title insurance premium is part of the charge shown on Line 1101, "Title services and lender's title insurance' on the HUD-1, along with any fees for title searches, examinations, endorsements and all charges associated with the title services and settlement (closing) agent services.
Question:
Do the disclosures of the title agent's and the title underwriter's portions of the title insurance premium on Lines 1107 and 1108 of the HUD-1 Settlement Statement also contain the charges for the title policy endorsements?
Answer:
Yes, disclosure of the agent's and the underwriter's portion of the title insurance premium on Lines 1107 and 1108 of the HUD-1 Settlement Statement also contains any charges for title policy endorsements that are retained by the title agent or title underwriter.
Question:
If a title insurance underwriter is also the title agent, what should be shown on the Lines 1107 and 1108 of the HUD-1?
Answer:
If there is no premium split between the title underwriter and a separate title agent, all of the title insurance premium (including charges for endorsements) would be shown on Line 1108, and $0.00 would be shown on Line 1107.
GOVERNMENT FEES QUESTION IN 1200 SERIES OF HUD-1
Question:
If there are additional government recording fees, such as to record a power of attorney or road maintenance agreement, are they included in Line 1201 of the HUD-1 or can they be charged separately?
Answer:
Line 1201 is used to record the total government recording charges. Additional items the lender requires to be recorded, other than those already enumerated in Line 1202 must be itemized on Line 1206. The charges for these additional items must be stated outside the column.
HUD-1 PAGE THREE QUESTIONS
Question:
How do settlement agents get the information to prepare page 3 of the HUD-1? Do they have to search through all of the loan documents to get this information?
Answer:
The lender is required to transmit the information necessary to complete the HUD-1. The instructions for completing the HUD-1 state that the lender must provide information to the settlement agent in a format that permits the settlement agent to simply enter the necessary information to complete the loan terms section on page 3 of the HUD-1 without having to refer to the loan documents.
Question:
Is it a violation of the tolerance if some of the items in the 10% category in the Comparison Chart exceed 10%, but other items in the category do not exceed 10%?
Answer:
The tolerance applies to the total of all charges shown in the category "Charges That in Total Cannot Increase More Than 10%." A tolerance violation of this category means that the total of all actual charges in this category exceed the total of all estimated charges in this category by more than 10%.
Some of the highlights of these changes include:
1. Any condominium development approved prior to October 1, 2008 (10/1/2008) loses its FHA approval and must formally re-apply.
2. No spot approvals, all applications must go to FHA directly but DE lenders can approve but with enormous liabilities if they miss one item.
3. Existing condominiums, regardless of whether they were FHA approved prior to October 1, 2008 or not will have to reapply for HUD approval. This means if a seller wants to sell their condominium unit, even if they received an FHA loan in 2006, that a new borrower won't be able to get an FHA loan on your unit unless your condominium has been re-approved by HUD.
FHA's actions could be disastrous for condominium sales across the United States especially given the fact that most loans today are FHA loans. If you think the HUD approval process is quick, think again, because most lawyers estimate that it takes them six months to get HUD approval. If this guideline change isn't implemented then I'm sure the approval process will become inundated so fast that it could overwhelm the process even further causing delays that could quickly reach a year or more. A borrower can still qualify for a Freddie Mac, Fannie Mae, VA, or USDA loan but if Freddie and Fannie are the borrower's only option to get condo financing they should prepare themselves to pay significantly higher fees for the same loan that FHA would have provided to them had the Condo been FHA approved.
To see if your Condominium will be affected by the new FHA Approval process please go to this website and see if your condominium is listed.
See below for the entire letter.
TO: ALL APPROVED MORTGAGEES
ALL FHA ROSTER APPRAISERS
SUBJECT: Condominium Approval Process – Single Family Housing
In accordance with the passage of the Housing and Economic Recovery Act (HERA) of 2008, the Federal Housing Administration (FHA) is implementing a new approval process for Condominium Projects to insure mortgages on individual units under Section 203(b) of the National Housing Act. FHA will now allow lenders to determine project eligibility, review project documentation, and certify to compliance of Section 203(b) of the NHA and 24 CFR 203 of HUD’s regulations. HUD will continue to maintain a list of Approved Condominium Projects. The requirements of this Mortgagee Letter are effective for all case numbers assigned on or after October 1, 2009 except as noted.
The purpose of this Mortgagee Letter is to provide guidelines and instructions on options available to lenders to receive mortgage insurance on condominium units which are located in a project. The lender will be required to retain all the project legal documents, contracts, conveyances, plats, plans, insurance coverage, presale and owner occupancy conditions and other documentation in connection with their review and approval of the condominium project. When requested, the lender must provide such documentation to HUD staff for verification of compliance with HUD’s regulations.
I. Approval Processing Options
A. The lender will have two condominium project approval processing options. The applicable documentation requirements will be the same for each option:
1. HUD Review and Approval Process (HRAP).
2. Direct Endorsement Lender Review and Approval Process (DELRAP), outlined in this Mortgagee Letter. This option is only available to lenders who have unconditional Direct Endorsement authority and staff with knowledge and expertise in reviewing and approving condominium projects.
B. The processing options stated above will be applicable to condominium developments that are:
1. Proposed/Under Construction;
2. Existing Construction; or
3. Conversions.
II. Eligible Projects
The Condominium Project has been created and exists in full compliance with applicable State law requirements of the jurisdiction in which the Condominium Project is located, and with all other applicable laws and regulations.
III. Ineligible Projects
A. Condominium Hotel or “Condotels”
B. Timeshares or segmented ownership projects
C. Houseboat projects
D. Multi-dwelling unit condominiums [i.e. more than one dwelling per condominium unit]
E. All projects not deemed to be used primarily as residential
IV. General Requirements
A. Site Condominiums
Site Condominiums are single family detached dwellings encumbered by a declaration of condominium covenants or condominium form of ownership. Condominium Project approval is not required for Site Condominiums; however, the Condominium Rider (Attachment D) must be included in the FHA case binder submitted for insurance endorsement. Manufactured housing condominium projects (MHCPs) may not be processed as site condominiums; these projects will require approval under HRAP.
NOTE: Site Condominiums requirements are effective immediately with issuance of this Mortgage Letter.
B. “Spot Loan” Approval Process
The Spot Loan Approval process as defined in Mortgage Letter 1996-41 is eliminated with issuance of this guidance. The DELRAP and HRAP processes have been streamlined to allow for uncomplicated condominium project approvals eliminating the need to approve units on a “spot loan” basis.
C. FHA-to-FHA Transactions
Project Approval is not required for:
a. FHA to FHA streamline refinance transactions; or
b. FHA/HUD Real Estate Owned (REO) Division sales.
D. Environmental Review Requirements
If a lender elects to use the HRAP option, then environmental reviews will not be
required for projects that, at the time that condominium project approval is requested,
have progressed beyond that stage of construction where HUD has any influence over the
remaining uncompleted construction. This occurs when:
• a condominium plat or similar development plan and any phases delineated therein have been reviewed and approved by the local jurisdiction and, if applicable, recorded in the land records, and
• the construction of the project’s infrastructure (streets, stormwater management, water and sewage systems, utilities, facilities (e.g., parking lots, community building, swimming pools, golf course, playground, etc.) and buildings containing the condominium units has proceeded to a point that precludes any major changes.
Environmental reviews will not be required for condominium projects approved using the
DELRAP option. If the appraiser identifies an environmental condition or the lender is
aware of an existing environmental condition through remarks provided on the Builder’s
Certification, form HUD-92541, the appraisal or other known documentation, the lender
must avoid or mitigate the following conditions before completing its review process:
1. The project is located in a Special Flood Hazard Area designated on a Federal Emergency Management Agency flood map.
2. Potential noise issues, where the property is located within 1000 feet of a highway, freeway, or heavily traveled road, within 3000 feet of a railroad, or within one mile of an airport or five miles of a military airfield.
3. The property has an unobstructed view, or is located within 2000 feet, of any facility handling or storing explosive or fire-prone materials.
4. The property is located within 3000 feet of a dump or landfill, or of a site on an EPA Superfund (NPL) list or equivalent state list, or a Phase I Environmental Site Assessment indicates the presence of a Recognized Environmental Condition or recommends further (Phase II) assessment for the presence of contaminants that could affect the site.
5. The property has any hazards or adverse conditions listed in Section 1.f. of the Builder’s Certification, including, but not limited to, high ground water levels, unstable soils, or earth fill.
6. The project is located in a wetland designated on National Wetlands Inventory maps or designated by State or local authorities.
7. The project is on the National Register of Historic Places or is within a historic district listed on the Register.
8. The appraiser or DE lender is aware of any other condition that could adversely affect the health or safety of the residents of the project.
V. Project Eligibility Requirements
A. The following requirements apply to all Condominium Project approvals:
• Projects consist of two units or more.
• Projects must be covered by hazard and liability insurance and, when applicable, flood insurance.
• Right of first refusal is permitted unless it violates discriminatory conduct under the Fair Housing Act regulation in 24 CFR 100.
• No more than 25 percent of the property’s total floor area in a project can be used for commercial purposes. The commercial portion of the project must be of a nature that is homogeneous with residential use, which is free of adverse conditions to the occupants of the individual condominium units.
• No more than 10 percent of the units may be owned by one investor. This will apply to developers/builders that subsequently rent vacant and unsold units. For two and three unit condominium projects, no single entity may own more than one unit within the project; all units, common elements, and facilities within the project must be 100 percent complete; and only one unit can be conveyed to non-owner occupants.
• No more than 15 percent of the total units can be in arrears (more than 30 days past due) of their condominium association fee payment.
• At least 50 percent of the total units must be sold prior to endorsement of any mortgage on a unit. Valid presales include an executed sales agreement and evidence that a lender is willing to make the loan.
• At least 50 percent of the units of a project must be owner-occupied or sold to owners who intend to occupy the units. For proposed, under construction or projects still in their initial marketing phase, FHA will allow a minimum owner occupancy amount equal to 50 percent of the number of presold units (the minimum presales requirement of 50 percent still applies).
• Legal Phasing is permitted for condominium processing. It is recommended that developers submit all known phases for initial project approval. For purposes of calculating the owner-occupancy percentage:
a. On multi-phased projects the owner-occupancy percentage is calculated on the first declared phase and cumulatively on subsequent phases if the ownership of the condominium project remains the same;
b. If multi-phasing includes separate ownership per phase, each phase is calculated individually; or
c. Single-phase condominium project approval requests must meet the owner-occupancy percentage requirement.
• FHA Concentration
a. Projects consisting of three or less units will have no more than one unit encumbered with FHA insurance.
b. Projects consisting of four or more units will have no more than 30 percent of the total units encumbered with FHA insurance.
• Reserve Study - a current reserve study must be performed to assure that adequate funds are available for the funding of capital expenditures and maintenance. A current reserve study must be no more than 12 months old – if recent events or market conditions have affected the finished condition of the property that information must be included. When reviewing the reserve study, consideration must be given to items that have been replaced after the time that the reserve study was completed.
VI. Manufactured Housing Condominium Projects
Pursuant to HERA, manufactured housing condominium projects are now eligible for FHA mortgage insurance. Accordingly, all outstanding and current FHA Manufactured Housing individual unit requirements remain applicable for both Home Equity Conversion Mortgages (HECM) and forward mortgages, including elevations in flood zones and foundation requirements. MHCPs must be submitted to the applicable Homeownership Center for review and approval – these projects are ineligible for DELRAP processing. MHCPs may not be processed as site condominiums; these projects will require approval under HRAP.
1. Appraisal reporting requirements for condominium manufactured homes:
a. Appraisal must be reported on the Manufactured Home Appraisal Report (Fannie Mae Form 1004C).
b. Subject condominium project must be inspected and the Project Information section of the Individual Condominium Unit Appraisal Report (Fannie Mae Form 1073) must be completed and included as an addendum to the appraisal report.
c. Comparable sales must be condominium manufactured homes. Detailed explanations must be provided when search parameters are expanded due to the lack of comparable sales in subject market area.
VII. Condominium Conversions
Conversion to condominiums occurs in those projects which involve changing the title of an existing structure generally under one title, to property that is separated into units so that the title to most units can be held separately. Changes to condominium conversion requirements are defined below:
1. The one-year waiting period requirement for conversions is eliminated;
2. In the event that FHA is insuring a mortgage on a unit and an undivided interest in the common elements on a project undergoing remodeling or rehabilitation, the entire condominium project, including the common facilities, must be 100 percent completely built before any mortgage may be endorsed. Escrow provisions will be permitted for weather related delays for common areas only.
VIII. FHA Connection (FHAC)
System modifications will be made to capture additional information, remove obsolete fields, and identify points of contacts. Major planned system modifications are:
1. Establishment of a Condominium Project Approval screen in FHAC that will be used by DE lenders and HUD staff to enter approval, rejection and recertification data.
2. System generated condominium project identification numbers based on the HOC of jurisdiction.
NOTE: While major system modifications have been identified, other modifications will be made and released as necessary to ensure collection of all valid information.
IX. Condominium New Construction Pre-approval and Inspection Requirements
Mortgagee Letter 2001-27 prohibited condominium processing under those guidelines. This Mortgagee Letter now permits condominium processing under the policy as established below.
In cases where a building permit and a certificate of occupancy (or its equivalent) are issued by a local jurisdiction that performs a minimum of three inspections (typically the footing, framing and final) neither an Early Start Letter nor a HUD approved ten-year warranty plan is required. For those jurisdictions that do not issue a building permit (or its equivalent) prior to construction and a Certificate of Occupancy (or its equivalent) upon completion of construction, a condominium unit that is one year old or less must have either an Early Start Letter (with a minimum of three inspections by an FHA Roster Inspector) or be covered by a HUD-approved ten-year warranty plan (with a final inspection by a FHA Roster Inspector) to be eligible for high-ratio mortgage insurance. All condominium types are eligible to follow this process (e.g. Multi-family). Projects are still required to be on the FHA-approved condominium list.
FHA will require the completion and retention of the following documents when processing new construction condominium project approvals:
• Builder’s Certification of Plans, Specifications and Site, form HUD-92541
• Builder’s Warranty, form HUD-92544
• Building Permit (or its equivalent)
• Final Certificate of Occupancy (or its equivalent)
FHA will not accept a temporary Certificate of Occupancy; all units within the building
(where the specific unit that is security for the insured financing is located) must be complete.
X. General Processing Steps for DELRAP or HRAP
A. Determine acceptability of the site and location of the project. Refer to Attachment A, Condominium Project Approval Matrix.
B. Review the project’s financial and legal documents; if acceptable, authorized personnel will sign and date the Lender Certification of Condominium Requirements
(Attachment B).
C. Place the Lender Certification of Condominium Requirements and other required certifications in the FHA case binder.
D. Retain and maintain all documents used to review and approve the project for a period of three years from the date of project approval.
E. Mixed condominium review and processing is not permitted. If a lender opts to participate in the DELRAP process, all future processing submissions must be processed, accordingly, in that sole and particular manner with the exception of manufactured housing condominium project approvals (these must be submitted to the applicable Homeownership Center for review and approval).
F. If a project is listed as Rejected or Withdrawn on the FHA-approved condominiums list, the only approval process accepted is HRAP.
G. Second and subsequent lenders that submit a unit for insurance in a project that is listed on the FHA-approved condominium list are not required to complete any further approval process. At the lender’s discretion, they may seek any additional information to satisfy their own requirements and/or perform their own due diligence. FHA will require the lender to certify it has no knowledge of circumstances or conditions that might have an adverse effect on the project or cause a mortgage secured by a unit in the project to become delinquent.
H. Subsequent phases being approved by a different lender must follow the general procedures listed here in Section X. The original lender must also follow these general procedures but will have already satisfied some of the steps listed.
I. All required certifications, as applicable, must be included in the FHA case binder submitted for insurance endorsement.
J. For both new construction and conversions if the developer intends to market five or more units within the next 12 months with FHA mortgage insurance, an Affirmative Fair Housing Marketing Plan (AFHMP) or a Voluntary Affirmative Marketing Agreement (VAMA) must be in place. Form HUD-935.2C, Affirmative Fair Housing Marketing Plan – Condominium or Cooperatives, is to be used for condominium projects. This completed form must be submitted to the Director of the Processing and Underwriting Division in the jurisdictional HOC for approval. If “a, b, c, or d” is checked on response to Question 2 in the Applicability section, the developer is not required to complete an AFHMP. The developer should complete block 11 on form HUD-92541, Builder’s Certification of Plans, Specification and Site.
K. Environmental reviews will be required for proposed and under construction project approvals submitted under the HRAP option consistent with the Environmental Review Requirements listed in Section IV. D. Environmental review is not required under DELRAP, but the lender must take necessary actions to avoid or mitigate identified environmental conditions prior to completing its project review.
L. Transfer of control of the Homeowners Association shall pass to the owners of units within the project no later than the earlier of the following:
1. 120 days after the date by which 75 percent of the units have been conveyed to the unit purchasers, or
2. One year after completion of the project evidence by the first conveyance to a unit purchaser.
XI. Certification for Initial Approval
Lenders must provide certifications on company letterhead signed by a company authorized representative (signature stamps or electronic signatures are not authorized) that:
1. The eligible condominium project complies with applicable FHA requirements addressed within this Mortgagee Letter;
2. All condominium legal documents meet HUD regulations, state and local condominium laws; and
3. Pre-sale and owner occupancy ratios per loan are met.
NOTE: FHA will not require an attorney's certification; however, lenders may obtain this as part of their due diligence process. Lenders are reminded that this document will not replace other condominium certifications required from the lender.
XII. Certification of Projects Previously Approved
If a project has been previously approved, lenders must certify that they are not aware of any change in circumstances since initial approval of the project that would result in the project no longer complying with FHA requirements.
XIII. Recertification of Project Approvals
Condominium Project approvals will expire two years from the date it has been placed on
the list of approved condominiums. This will also apply to all projects currently on the list of approved condominiums. Further participation in the program after this two-year period has expired will require recertification to determine that the project is still in compliance with HUD’s owner-occupancy requirement and that no conditions currently exist which would present an unacceptable risk to FHA. Items that should be given consideration are:
1. Pending special assessments,
2. Pending legal action against the condominium association, or its officers or directors,
3. Hazard, liability insurance and when applicable flood insurance.
XIV. Quality Assurance
Monitoring the condominium approval process is critical to the success of the program. Lenders who approve condominium projects utilizing the DELRAP option will be required to submit a copy of the complete condominium project approval package to the applicable Homeownership Center within five business days of approval. Lenders are required to submit the first five DELRAP approvals for review. Further, to manage FHA’s risk, and ensure compliance with all condominium project policy requirements, additional condominium project approvals will be selected for review. The criteria for selection of the additional approvals will be determined and lenders will be notified in future guidance.
XV. False Certifications
Title 18 U.S.C. 1014, provides in part that whoever knowingly and willfully makes or uses a document containing any false, fictitious, or fraudulent statement or entry, in any matter in the jurisdiction of any department or agency of the United States, shall be fined not more than $1,000,000 or imprisoned for not more than 30 years or both. In addition, violation of this or others may result in debarment and civil liability for damages suffered by the Department.
XVI. Insurance of Individual Units
All applicable, outstanding and any additional FHA insurance requirements not defined in this guidance must be met for individual units.
If you have questions regarding this Mortgagee Letter, please call the FHA’s Resource Center at 1-800-CALL-FHA (1-800-225-5342). Persons with hearing or speech impairments may access this number via TDD/TTY by calling 1-877-TDD-2HUD (1-877-833-2483).
Sincerely,
Brian D. Montgomery
Assistant Secretary for Housing-
Federal Housing Commissioner
1. The 3/7/3 Rule requires a seven business day waiting period once the initial disclosure is provided before closing a home loan (business days are everyday except Sundays and Holidays). This means that before a borrower can close on a transaction the borrower must receive the initial Good Faith Estimate (GFE) and initial TIL statement disclosing the final Annual Percentage Rate (APR) seven days prior to closing.
2. If the final annual percentage rate APR is off by more than .125% from the initial GFE disclosure then the lender must re-disclose and wait yet another three business days before closing on the transaction.
3. The consumer has the right to cancel and not proceed with the transaction if they so choose.
4. Lenders are forbidden from collecting money for appraisals, loan applications, etc. prior to the delivery of the Truth In Lending (TIL). Lenders can only collect from the borrower the credit report fee at the time of prior to delivery of the final TIL. No other fees are permitted to be collected at the time of application. If the TIL is sent by mail, additional charges can occur after the 3rd business day after the borrower receives the TIL in the mail.
5. The following language must be clearly written on the initial and final TIL: "You are not required to complete this agreement merely because you have received these disclosures or signed a loan application."
If you are a real estate agent or title agent you need to manage the process very carefully by:
A. Making sure that you check the initial Good Faith Estimate and Truth In Lending form for your buyers and look for discrepancies in charges. The new rules were put in place to protect consumers from being low balled one figure by a loan officer only to find out at the closing table that the fees charged were much higher. The new MDIA rules will absolutely delay closings if these steps are not followed carefully.
B. Buyers, sellers, and real estate professionals should not schedule a closing until the borrower has completed the seven day waiting period as required in the initial TIL.
]]> Here are three examples of the "3/7/3 Rule" of the MDIA:Example A.
1. August 1st the loan application is taken;
2. August 2nd the initial TIL is sent in the mail;
3. August 10th the closing can occur on this day or after this day if the initial TIL was received
and the APR was within the .125 of the final TIL.
Example B.
1. August 1st the loan application is taken;
2. August 2nd the initial TIL is sent in the mail;
3. August 4th the borrower's interest rate increases causing the APR to increase by more
than .125 (1/8th) percent which triggers a re-disclosure of another TIL;
4. August 5th the revised initial TIL is mailed to the borrower. The borrower can close on the
transaction at the earliest on August 13th (add a day to account for Sunday).
Example C.
1. August 1st the loan application is taken;
2. August 2nd the initial TIL is sent in the mail;
3. August 20th the borrower's interest rate increases causing the APR to increase by more
than .125 (1/8th) percent which triggers a re-disclosure of another TIL;
4. August 20th a revised initial TIL is mailed to the borrower;
5. August 23rd the borrower receives the revised initial TIL in the mail;
6. August 26th (unless it falls on a Sunday then the 27th) the borrower can close on their
residential real estate transaction and sign the mortgage documents on this day or later if the
final TIL doesn't once again increase by .125 otherwise you can start the entire process all
over again.
The current financial governing system encourages abuses in the industry to take place because of the loopholes created by an inefficient and ineffective regulatory structure. The loopholes are exploited even further by the mass infighting that many of the governmental regulatory bureaucracies regularly display. The consolidation of these various federal agencies into one rule-making and investigative federal division should provide more uniform rules for those in the real estate industry and for consumers of real estate products.
The CFPA will have sole authority to draft and interpret regulations under the existing consumer financial services and fair lending statutes. The recent Good Faith Estimate/HUD-1 Settlement Statement forms developed by HUD and the Truth In Lending Act form is a prime example of decisions being made by one federal agency without input from a completely different agency. The biggest benefit consolidation presents to the industry and to the consumer is that this will increase the number of enforcement investigators. The consolidation of regulatory investigators is crucial because quite often investigators in one agency stop investigating abuses that relate to other agencies due to a myriad of reasons.
]]> The Consumer Financial Protection Agency would allow supervisory authority over the following:It remains to be seen whether the Interstate Land Sale Act or the Manufactured Housing Loan Modernization Loan Act or other acts will be incorporated into the CFPA. Looking at the CFPA from a enforcement point of view only, the Consumer Financial Protection Act makes all the sense in the world because it certainly will add investigators to help curb abuses in the industry. However, there is concern about how far the regulatory powers of this new proposed agency will go. One problem in the past is that some agencies pushed for new regulations or provided guidance on rules that caused mass confusion in the industry and ultimately inflicted higher fees on consumers. This proposal should be vetted very carefully but the enforcement sections should be and need to be adopted immediately.
]]>David H. Stevens was the past President & COO of Long & Foster Realtors; Vice President of Mortgage, Title, and Insurance Division for Longer & Foster; Executive Vice President for Wells Fargo Home Mortgage; on the Lender's Advisory Council for the Mortgage Bankers Association (MBA); on the Board of Directors of the National Association of Mortgage Brokers (NAMB); on the Board of Directors of the Real Estate Services Providers Council (RESPRO).
]]>