New RESPA Rule FAQs - part 3

The Q&As below are those that were added by HUD January 28, 2010

To make it clear what changed and what didn't, we have adopted the following scheme. If a question or answer is not in bold below, it means the entire Q&A is new in the latest FAQ. If part of an answer is bolded, it means that the recent FAQ revised the answer and we have bolded the part of the answer that actually changed.

General - page 4
11) Q: May a loan originator require the use of its affiliate for the tax service or flood certificate?
A: No, a loan originator may not require the use of its affiliate for tax service or flood certificate, but a loan originator may require the use of a non-affiliated provider.

14) Q: May the pagination of the GFE change?
A: No, the pagination of the GFE may not change.

15) Q: May the GFE be on legal size paper?
A: Yes, the GFE may be on legal size paper.

16) Q: Can shading and margins be changed on the HUD-1?
A: Yes. Shading and margins may be changed on the HUD-1. (See 24 C.F.R. ? 3500.9)

17) Q: Can lines be added to the HUD-1 Settlement Statement?
A: Yes, lines may be added to the HUD-1 and blank line within a series may be deleted from the HUD-1. (See 24 C.F.R. ? 3500.9)

GFE ? General - page 7
15) Q: If an FHA approved loan correspondent closes a loan in its name and is not table-funded by its sponsor, but rather is funded from its own funds or from a warehouse line of credit which it controls, is the correspondent considered a mortgage broker or a lender?
A: If an FHA approved loan correspondent closes a loan in its name and is not table-funded by its sponsor, but rather is funded from its own funds or from a warehouse line of credit which it controls, the correspondent is considered to be a lender.

19) Q: If a GFE has been provided and the interest rate has not been locked, can the loan originator provide a revised GFE when the borrower later locks the interest rate?
A: Yes, if a borrower locks the interest rate after the GFE has been issued, a revised GFE must be issued within 3 days of the interest rate lock reflecting the date that the interest rate lock is good through in Line 1 and ?N/A? in Line 4 of the ?Important dates? section of the GFE. 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.

29) Q: If a mortgage broker provides the initial GFE and the lender accepts the loan, can the lender issue a new initial GFE?
A: No. The lender is bound by the charges and terms disclosed on the initial GFE provided by the mortgage broker.

30) Q: If the borrower has locked the interest rate, how should the loan originator complete Line 4 in the ?Important dates? section of the GFE?
A: The loan originator should complete Line 4 in the ?Important dates? section of the GFE with ?Not Applicable? or ?N/A? after the borrower has locked the interest rate.

31) Q: May the originator require the borrower to sign consents to verify employment, income or deposits prior to issuing a GFE without violating 3500.7(a)(5)?s prohibition on requiring the applicant to submit supplemental documentation to verify information provided on the application?
A: No, 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)). However, the borrower may voluntarily sign consents prior to the issuance of the GFE to facilitate the loan process.

32) Q: Does a loan originator have 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% of the fee?
A: 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). 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.

The credit for the appraisal fee (or other fee) could also be offset by a credit disclosed as a negative number in Line A of the GFE and listed as a negative number in Line 803 of the HUD-1.

33) Q: Can loan originators request verification documents or charge fees prior to issuing a prequalification or preapproval?
A: No. In order to prevent over burdensome documentation demands on mortgage applicants, and to facilitate shopping by borrowers, the final rule specifically prohibits the loan originator from requiring an applicant, as a condition for providing a GFE, to submit supplemental documentation to verify the information provided by the applicant on the application. Loan originators, however, can require applicants to provide such verification information after the GFE has been provided, in order to complete final underwriting. In addition, the rule does not bar a loan originator from using its own sources before issuing a GFE to independently verify the information provided by the applicant.

Similarly, HUD has long supported a public policy goal of creating a circumstance where consumers can shop for a mortgage loan among loan originators without paying significant upfront fees that impede shopping. To this end, and consistent with the Federal Reserve Board?s recently issued revised regulations limiting the fees that a consumer may be charged for the delivery of TILA disclosures, loan originators may not charge consumers anything more than the cost of a credit report prior to issuing a GFE.

GFE ? Written list of providers - page 14
11) Q: May a loan originator state on the ?written list? that the loan originator is not endorsing the quality of a settlement service providers service?
A: Yes, the loan originator may include a statement on the ?written list? that the listing of a service provider on the ?written list? does not constitute an endorsement of that service provider.

GFE ? ?Changed circumstances? - page 16
3) Q: If there is a ?\changed circumstance,. when does the loan originator issue a new GFE?
A: When there is a ?\changed circumstance. and the loan originator intends to issue a revised GFE, the loan originator must do so within three business days of receiving the information sufficient to establish changed circumstances. A loan originator may issue a revised GFE reflecting only the increased charges resulting from the "changed circumstance".

8) Q: Are the following sufficient to establish ?\changed circumstances. consistent with 24 CFR ?? 3500.7(f)?
i) A mortgage broker issues a GFE that the lender does not accept.
A: This does not constitute a changed circumstance.

ii) If a GFE is issued without a property address, the later identification of a property address.
A: If a loan originator issues a GFE without identifying a property address, the subsequent identification of the property address, in and of itself, is not considered a changed circumstance.

iv) GSE, FHA or Mortgage Insurance program changes.
A: This could constitute a changed circumstance if the loan originator did not have notice of the GSE, FHA or other mortgage insurance program change prior to the issuance of the GFE. A loan originator may issue a revised GFE reflecting only the increased charges resulting from the ?changed circumstance?.

v) The property address provided by the applicant, turns out to not be the correct, legal address.
A: This could constitute a changed circumstance. A loan originator may issue a revised GFE reflecting only the increased charges resulting from the ?changed circumstance?.

vi) After the GFE is issued, parties are added to or removed from title or the property is moved into or out of trust.
A: These situations could be considered changed circumstances. A loan originator may issue a revised GFE reflecting only the increased charges resulting from the ?changed circumstance?.

vii) During or as part of the transaction, it is determined that the property use may change, such as from owner-occupied to rental property.
A: This could constitute a changed circumstance. A loan originator may issue a revised GFE reflecting only the increased charges resulting from the ?changed circumstance?. It should be noted that business purpose loans are not covered by RESPA. See 24 CFR ?3500.5.

viii) After the GFE is issued, it is determined that a party will be using a POA to sign, which may require additional work and additional fees.
A: This could be considered a changed circumstance. A loan originator may issue a revised GFE reflecting only the increased charges resulting from the ?changed circumstance?.

ix) Credit policy is required to change after the GFE is issued due to regulatory changes such as fees charged by government agencies for recording fees or taxes change after the GFE is issued.
A: This could constitute a changed circumstance if the loan originator did not have notice of the regulatory change prior to the issuance of the GFE. A loan originator may issue a revised GFE reflecting only the increased charges resulting from the ?changed circumstance?.

xii) AVMs are commonly used for the property type and loan amount requested, but the AVM request comes back with a ?\no hit,. necessitating the use of a more expensive valuation method.
A: This could constitute a changed circumstance. A loan originator may issue a revised GFE reflecting only the increased charges resulting from the?"changed circumstance".

xiii) After the GFE is issued, it is determined that an additional service such as an additional pest, structural or other inspection, upgraded appraisal, certification, survey or other requirement is required by the loan originator in connection with the transaction.
A: This could constitute a changed circumstance. A loan originator may issue a revised GFE reflecting only the increased charges resulting from the ?changed circumstance?.

xiv) The borrower?s credit score changes.
A: This could constitute a changed circumstance. A loan originator may issue a revised GFE reflecting only the increased charges resulting from the ?changed circumstance?.

10) Q: If there is a changed circumstance and the mortgage broker issued the GFE, may the lender issue the revised GFE reflecting the changed circumstances?
A: Yes. If there is a changed circumstance that allows for a revised GFE, either the mortgage broker or the lender may issue the revised GFE, but must also comply with the requirements for documenting and retaining documentation of the reason for the revised GFE. A loan originator may issue a revised GFE reflecting only the increased charges resulting from the ?changed circumstance?.

GFE ? Important dates - page 21
4) Q: If the interest rate is locked at the time the GFE is issued, how should the loan originator complete Lines 1, 3, and 4 in the ?\Important dates. section on the GFE?
A: When the interest rate is locked before the GFE is issued, the information in Line 1 in the ?"Important dates" section on the GFE must be completed by disclosing the date that the interest rate lock will expire, Line 3 must be completed to state the number of days the interest rate lock period is good through, and Line 4 must be completed with ?"N/A?".

12) Q: If a revised GFE is provided due to changed circumstances or a borrower requested change, must a loan originator complete Line 2 in the ?Important Dates? section on the revised GFE if the shopping period has ended and the borrower has already expressed intent to continue with the application?
A: Yes, the loan originator must complete Line 2 in the ?Important dates? section with the same date from the last GFE. The borrower is not required to re-indicate the intent to proceed with the revised GFE because the borrower has previously expressed an intent to move forward with the transaction.

14) Q: If Line 1 in the ?Important dates? section of the GFE changes, does Line 2 of the same section also change?
A: No. Line 1 and Line 2 of the ?Important dates? section are not related to each other. Line 1 is the date and time that the interest rate is good through. Line 2 is the date that all non-interest rate-dependent charges are good through (Blocks 1, 3, 4, 5, 6, 7, 8, 9 and 11). After the borrower expresses intent to proceed with the transaction, the estimates for Blocks 1, 3, 4, 5, 6, 7, 8, 9, and 11 may not change unless there is a ?changed circumstance? or a borrower requested change.

15) Q: If the borrower expresses intent to proceed before the date disclosed in Line 2 in the ?Important dates? section of the GFE expires, can the estimates for ?Your Charges for All Other Settlement Services? change?
A: No. If the borrower has expressed an intent to proceed, the estimates for ?Your Charges for All Other Settlement Services? may not change through settlement (except for Block 10) unless there is a ?changed circumstance? or borrower requested change.

GFE ? Block 1 - page 26
8) Q: When the interest rate goes from float to rate lock, may Block 1 on the GFE change?
A: No. However, Block 1 can increase due to a changed circumstance if the change affects the loan amount and all or a portion of the Origination Charges were calculated as a percentage of the loan amount. Block 1 may also increase if the borrower either requests a different loan product or the borrower is no longer eligible for the loan product contained in the initial GFE, but is eligible for a different loan product.

9) 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.

10) Q: Is Block 1 of the GFE a financ
charge?
A: Portions of Block 1 may be ?finance charges?. However, Block 1 of the GFE is all compensation for all loan originators. A ?finance charge? is defined in the Truth-in-Lending Act, regulated by the Federal Reserve Board of Governors.

GFE ? Block 2 - page 28
7) Q: May the yield spread premium be shown as ?Paid Outside of Closing? (P.O.C.) on the GFE and the HUD-1?
A: 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.

8) Q: Where on the GFE do I disclose an escrow waiver fee?
A: An escrow waiver fee is a type of loan level price adjustment and may be part of the calculation of Block 2 on the GFE. Alternatively, if the escrow waiver is known at the time of application, the charge for the escrow waiver can be included in ?Our origination charge? disclosed in Block 1.

9) Q: If the borrower wants to waive the escrow account after the interest rate has been locked by the borrower, how can we show the escrow account waiver charge on the GFE?
A: If a borrower asks to waive the escrow account after the interest rate has been locked, the loan originator may issue a revised GFE based upon the borrower?s requested change. Charges associated with the escrow account waiver should be disclosed by adjusting Block 2 on the revised GFE. Please note that an escrow waiver cannot be considered a borrower requested change and the GFE cannot be revised to reflect an escrow account waiver charge if the initial GFE stated that there was no escrow account on the loan.

GFE ? Block 3 - page 29
4) Q: If a lender requires a condominium certificate and questionnaire for loans on condominiums, where does the charge go on the GFE?
A: If a lender requires a condominium certificate and questionnaire for loans on condominiums, the service is performed by a third party and the borrower is not permitted to shop for the provider of that service, the charge for the condominium certificate and questionnaire must be disclosed in Block 3 of the GFE.

GFE ? Block 6 - page 31
1) Q: What charges are disclosed in Block 6 of the GFE?
A: Block 6 of the GFE includes third party services required by the lender where the borrower is permitted to shop for the provider, other than Title services and lender?s title insurance (Block 4) and Owner?s title insurance (Block 5). These types of charges include, but are not limited to: survey, pest inspection and other types of inspections required by the lender. Charges that are part of the sales contract, but are not required by the lender, are not disclosed on the GFE.

GFE ? Tradeoff table
Section 4 and 5 ? Right to cure and tolerance violations - page 39
14) Q: In some areas the deed and deed of trust are recorded after a transaction closes and funds. If the actual amount of transfer taxes increases and the settlement agent later collects the increase from the borrower, would this be a tolerance violation even if it occurred after settlement?
A: Yes. Whether settlement charges are collected before, during or after settlement, if the charge exceeds the tolerance threshold, there is a tolerance violation.

15) Q: In some areas the deed and deed of trust are recorded after a transaction closes and funds. If the settlement agent pays the difference to get on record and intends to collect the increase from the borrower, may the lender reimburse the settlement agent directly to cure the potential tolerance violation?
A: If the settlement agent pays the difference in transfer tax on behalf of the borrower, the lender may reimburse the settlement agent. The settlement agent must prepare a revised HUD-1 showing the cure of the potential tolerance violation and send the revised HUD-1 to the parties in the transaction, as appropriate.

HUD-1 - page 42
15) Q: Where should separate charges to the seller for the preparation of deeds or a closing charge be disclosed on the HUD-1?
A: Separate charges to be paid by the seller for settlement services that are not included in the definition of ?title services? for the borrower must be disclosed on a blank line in the 1100 series on the HUD-1 in the seller?s column.

HUD-1 ? 800 series- page 46
11) 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.

HUD-1 ? Page 54
3) Q: How are items that were ?\paid outside of closing. (P.O.C.) shown in the Comparison Chart on page 3 of the HUD-1? A: The HUD-1 column in the Comparison Chart must include any amounts shown on page 2 of the HUD-1 in the column as paid by the borrower, plus any amounts that are shown as P.O.C. by or on behalf of the borrower.
For example, if the borrower pays $300 towards required appraisal services, but the total charge for the appraisal is $500, then Line 804 on page 2 of the HUD-1 will show a P.O.C. amount of $300 outside the column and a charge of $200 in the borrower's column.



First published on BankersOnline.com 1/31/10