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#1465032 - 11/05/10 08:50 PM Block 2 credits not tied to interest rate chosen
deeb Offline
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Joined: Aug 2002
Posts: 72
MI
I put a question into HUD about settlement service charges that the bank would pay for and how they could/would go on the HUD-1A.

Their reponse: "Credits related to the interest rate or "no cost" loans may be listed in Line 802. If there are other types of credits, the HUD-1 must be used."

So my question is... how does this relate to block 2 since the credits aren't interest rate related? I can't seem to get the two to balance. Help!
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RESPA
#1465124 - 11/06/10 02:27 AM Re: Block 2 credits not tied to interest rate chosen deeb
jlroberts Offline
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jlroberts
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Ohio
I pretty much got the same answer when I asked about us paying for the credit report.

From: HSG-RESPA [mailto:HSGRESPA@hud.gov]
Block 2 also includes a credit for any charges in a "no cost" loan. A "no cost" loan could include some or all of the origination charge or third party charges.

To: HSG-RESPA
We thought Block 2 was a credit or charge for the rate chosen (as it clearly states on the GFE and HUD1 instructions), this is not why we do not pass the fee onto the borrower. Can you please clarify this discrepancy?

From: HSG-RESPA [mailto:HSGRESPA@hud.gov]
Yes, in Block 3 and in Line 805. A credit may be given in Block 2 to offset the charge.

To: HSG-RESPA
Subject: Credit Report Fees
We do not pass the credit report fee on to the borrower, are we required to list it in Block 3 or on HUD line 805?

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#1465163 - 11/07/10 03:08 AM Re: Block 2 credits not tied to interest rate chosen jlroberts
Truffle Royale Offline

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I think Block 2 credits are begging for trouble. Anything comes in lower and you're stuck giving the borrower free money. I think giving the GFE showing all the charges along with the seperate 'this is what it's really going to cost you' sheet and a credit on the HUD 1 is better.

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#1465201 - 11/08/10 01:53 PM Re: Block 2 credits not tied to interest rate chosen Truffle Royale
deeb Offline
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Posts: 72
MI
I totally agree and like how you're approaching it Truffle, but I don't think my loan department will agree to di it that way(showing the GFE higher than what the customer will actually incur and give a separate sheet). Is there anyone else doing it this way?

Also wondered if anyone has had an exam that looked at this area.

Thanks
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#1465734 - 11/09/10 04:00 AM Re: Block 2 credits not tied to interest rate chosen deeb
Truffle Royale Offline

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You're not showing it higher. You're just listing all the costs of the loan. I'm definitely not suggesting padding the costs in any way here. I am saying that rather than leave the door open for the bank having to pay for costs that aren't actually incurred, you just list the normal charges and give a credit on page one of the HUD.

There are lots of banks out there doing it this way. Try searching the RESPA forum. It's also specifically mentioned in the April 2010 FAQ as allowable.

As to exams on this, I think the examiners are just starting reviewing for the new RESPA so there's not much reedback out there yet.

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#1465763 - 11/09/10 01:26 PM Re: Block 2 credits not tied to interest rate chosen Truffle Royale
RR Joker Offline
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The Swamp
What TR has explained is how we would handle this situation UNLESS it's a specific credit like a credit report using the average charge, which is consistent.
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#1466070 - 11/09/10 07:55 PM Re: Block 2 credits not tied to interest rate chosen RR Joker
David Dickinson Offline
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David Dickinson
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Central City, NE
I agree with Truffle 100%. HUD changed the rules on lender credits with their 4/2/10 FAQ update. I wrote an article about this in our August newsletter (copied/pasted below):

Credits in Block 2 / 802
Assume a lender is “eating” a fee (such as a credit report) instead of passing it on to the borrower. The Good Faith Estimate (GFE) requires all settlement services to be listed, but should the GFE identify a negative number in Block 2? Appendix C to RESPA and the FAQs clearly state lender credits are to be listed in Block 2 (in the “no cost loan” section). However, during the June 2, 2010, ABA Teleconference with HUD and at the ABA Compliance Conference, HUD officials indicated when a lender “eats” a fee; they do not want the fee to be entered as a negative amount on the GFE. They stated, “Block 2 is for interest rate dependent charges”.

I’ve had several follow-up calls concerning this issue with HUD since their comments appear to contradict the regulation. HUD officials have stated a credit is NOT required to be on the GFE when the lender is “eating” a fee but they prefer it. FAQ #32 in the “GFE – General” section does support their position.

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.


This FAQ allows you two alternatives to listing the lender paid fee. The first answer states you can leave it off the GFE and list the credit in the 200 series of the HUD-1. The second answer indicates you can list the credit on the GFE (which would go in Block 2 and net into the total on Line A) and then transfer this information to the Settlement Statement on Line 802 (netting into the total on Line 803).

There’s actually a third alternative. You can leave the credit out of Block 2 of the GFE and simply list the fee as “POC (Lender)” on the HUD-1/1A. However, there is a prohibition of having any 801, 802 or 803 fees listed as POC, so this is only applicable to “Block 3-11” fees.

So which should you choose? I like the first and third approach. The idea of listing a credit in Block 2 isn’t to say “we’re giving you $x.xx.” It’s simply to say, “We’re paying for this service”. If you list a credit in Block 2 of the GFE, you cannot decrease the credit if the actual charge is less. But if you leave the credit off of the GFE, you can list the actual charge as a credit in the 200’s of the HUD-1

Settlement Statement or list the actual charge as “POC (Lender)” on a HUD-1/1A.
Whichever method you choose, your GFE may still appear to be overstated. There’s a simple solution to this: issue a worksheet with the GFE to show the applicant the fee you intend to “eat”. Then the bottom line will be the same as if you showed the credit in Block 2.
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#1468666 - 11/17/10 12:02 AM Re: Block 2 credits not tied to interest rate chosen David Dickinson
jlroberts Offline
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jlroberts
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Ohio
We are listing the fees on the GFE based on "worse case pricing" and giving them a "cost sheet" to show the more pratical pricing. We got burnt a few times giving the credit in 802 so we are giving all lender credits on HUD line 205.

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#1474140 - 12/01/10 02:01 PM Re: Block 2 credits not tied to interest rate chosen David Dickinson
deeb Offline
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Joined: Aug 2002
Posts: 72
MI
David,

Since HUD's FAQ #32 references line A instead of block 2, does this change anything?

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.

Honestly, I'm not sure where else they expect them to go!
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#1474179 - 12/01/10 02:40 PM Re: Block 2 credits not tied to interest rate chosen deeb
Dan Persfull Offline
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Bloomington, IN
Line A is the sum of Block 1 & 2. You cannot plug a figure directly into Line A. If you use this option you would show the credit in Block 2 as David stated in the above post.
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#1474233 - 12/01/10 03:31 PM Re: Block 2 credits not tied to interest rate chosen Dan Persfull
Truffle Royale Offline

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Which brings you back around to how much are you going to list as a credit? Staying with your appraisal fee example, are you SURE of the appraisal cost? What if it comes in higher? Will you make the borrower pay the difference or is it your bank's intent to cover the cost of the appraisal no matter what? If it's the latter, how are you going to show the additional credit?

And what if the appraisal comes in lower than the credit amount? If you list a credit in Block 2, you MUST give the borrower that credit whether the cost comes in lower or not. So now your bank is giving away free money?

Maybe if you explain it to the powers at your bank this way, deeb, they'll understand that it's best to tell the borrowers they'll get $x credit and just give it as a lump sum on page 1 on the HUD.

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#1646410 - 01/05/12 03:44 PM Loan Closing today - No Cost loan fee changing deeb
fslic banker Offline
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On "No Cost" consumer loans we take total of all Block 3 items (appraisal, credit report, flood, etc) and place an offsetting credit in Block 2. Our Block 3 totals would be worse case scenario and include the cost of a full appraisal (let's say $400). However, at times we use an AVM which is only $100. If we can't change the Block 2 credit total then apparently we have a tolerance issue and owe the consumer $300 minus the 10% tolerance. Is that the concensus? If so, if the "No Cost" fees could ever decrease because the bank chose to utilize an AVM instead of a full appraisal then Block 2 should show no credit and the bank should utilize a HUD 1 rather than a HUD 1A on a refinance in order to provide the offsetting bank credit and avoid Block 2 on the GFE and Line 802 on the HUD1A.

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#1646468 - 01/05/12 04:18 PM Re: Loan Closing today - No Cost loan fee changing deeb
Truffle Royale Offline

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No that is not the concensus.
There is no tolerance for Block 2.
If you said you were going to give them a worst case scenario credit of $500 and then used an AVM which made Block 3 equal $200, you owe the borrower $300 in cash!
Therefore we NEVER give a 'No Cost' credit in Block 2 and we use a HUD 1 for all transactions.

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#1656414 - 01/26/12 04:29 PM Re: Block 2 credits not tied to interest rate chosen David Dickinson
OnTheEdge Offline
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SmallTown, USA
David, we are struggling with lender waived fees. The article you shared is very helpful(Nov 2010). Have there been any changes that would keep us from using your article as a guide.
Thanks for your help.
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#1656605 - 01/26/12 07:23 PM Re: Block 2 credits not tied to interest rate chosen deeb
Truffle Royale Offline

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There have been no further changes to RESPA that affect this issue.
If a lender is waiving a fee that is a normal cost of getting a loan with your bank, I would recommend that you still show it on the GFE and show a credit in the 200s on the HUD, same as any other credit your bank may chose to give.

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