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.

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:

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.

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.

If you have questions or comments please feel free to ask in our RESPA Blog comment section.

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.

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.

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.

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).