Compliance Blog

Posted by Anthony Demangone

Last Thursday, HUD updated its "New RESPA Rule FAQs" guidance document.  Again.  With virtually no public announcement that I am aware of.  Again.  You can access it here. 

HUD notes new questions and answers within the 51-page document by bolding them.  I went through and looked for all the new questions and answers, and here they are.  (You can thank me later.)  (And interestingly, HUD chooses to spell acknowledgment with the e - acknowledgement.  The choice is not an error, but it is more of a British way of spelling the word.  But I digress.  Perhaps because the Kansas City game today has me a bit off my game.)  Here are the aforementioned questions and answers.

28) Q: May a loan originator alter the GFE by adding signature lines to the GFE?

A: No. However, loan originators may develop practices and procedures to document the consumer’s acknowledgement of receipt of the GFE. Loan originators may not refuse to provide a GFE based upon a consumer’s refusal to acknowledge receipt of the GFE. Acknowledgement of receipt of a GFE, by itself, does not constitute an expression of an intention to proceed with the loan covered by the GFE.

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9) Q: May a loan originator include an affiliated business on the “written list” of settlement service providers that must be provided with the GFE?

A: Yes. A loan originator may identify an affiliated business on the “written list”. The “affiliated business arrangement disclosure” must be provided at the time the GFE is provided to the borrower or at the time of referral, whichever is earlier.

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10) Q: Does the requirement for a “written list” apply to Block 4, “Title services and lender’s title insurance” on the GFE?

A: Yes. The loan originator must provide a “written list” of settlement service providers, including providers of “Title services and lender’s title insurance” if the loan originator permits the borrower to shop for that settlement service.

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4) Q: The regulation states that while the borrower’s interest rate is locked, the credit or charge for the interest rate chosen and the adjusted origination charge may not increase from the amount shown on the GFE. On a “no-cost” loan that covers third-party costs where the rate has been locked, the GFE should show a credit for the interest rate chosen, in an amount sufficient to cover the estimated loan originator and third party fees. If the actual third party fees at closing are lower than stated on the GFE, may the loan originator reduce the amount of the credit to match what is needed to pay the actual third party and loan originator fees?

A: No, the amount of the credit may not be reduced. The loan originator may choose to: 1) have the amount of the credit remain the same as stated on the GFE to cover additional closing costs previously not anticipated to be included in the “no-cost” loan; 2) apply a principal reduction to the principal balance; 3) reduce the interest rate and the credit accordingly; or 4) have the credit remain the same, resulting in cash to the borrower.

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5) Q: A loan level price adjustment is a risk-based adjustment that is derived from specific attributes of the particular loan (LTV, FICO score, occupancy, etc.). How should a loan level price adjustment charged by the lender be disclosed on the GFE?

A: For transactions involving a mortgage broker, the credit or charge for the specific interest rate chosen is the net payment from the lender for the loan. If the net payment from the lender is positive, there is a credit to the borrower and it is entered as a negative amount in Block 2 of the GFE. If the net payment from the lender is negative, there is a charge to the borrower and it is entered as a positive amount in Block 2 of the GFE. The loan level price adjustment is included in the computation in Block 2, “Your credit or charge for the specific interest rate chosen.”

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6) Q: If the lender funds a transaction involving a mortgage broker and there is a credit to be given in Block 2 of the GFE, how does a loan originator calculate the amount of the credit?

A: For transactions involving a mortgage broker, the credit for Block 2 of the GFE is calculated as the net payment from the lender above the principal amount of the loan. The net payment from the lender includes any payments made from the lender to the broker. The resulting computation is stated as a dollar amount. The calculation of Block 2 is the same, whether or not the transaction is table funded.

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3) Q: If a governmental loan program chooses a service provider such as the appraiser on a VA loan, should the settlement service be disclosed in Block 3 or Block 6 on the GFE?

A: If a governmental loan program chooses a settlement service provider, such as the appraiser on a VA loan, the settlement service should be disclosed in Block 3 on the GFE.

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15) Q: If an adjustable rate mortgage (ARM) has a different periodic interest rate adjustment limit applicable to the first rate adjustment than the limit used for subsequent rate adjustments, how should the subsequent rate adjustment limits be disclosed in the Loan Terms section on page 3 of the HUD-1?

A: To disclose limits on periodic interest rate adjustments, where different limits apply at different times in the life of the loan (such as for an ARM with a special adjustment limit applicable to the first adjustment), the settlement agent may either insert the maximum interest rate or the range of the change limits, such as 2-5%.