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#1465032 - 11/05/10 08:50 PM
Block 2 credits not tied to interest rate chosen
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Member
Joined: Aug 2002
Posts: 72
MI
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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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Dee
CAMS, CRCM
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#1465201 - 11/08/10 01:53 PM
Re: Block 2 credits not tied to interest rate chosen
Truffle Royale
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Member
Joined: Aug 2002
Posts: 72
MI
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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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Dee
CAMS, CRCM
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#1465763 - 11/09/10 01:26 PM
Re: Block 2 credits not tied to interest rate chosen
Truffle Royale
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10K Club
Joined: Nov 2002
Posts: 20,654
The Swamp
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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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My opinion only. Not legal advice. Say you'll haunt me - Stone Sour
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#1466070 - 11/09/10 07:55 PM
Re: Block 2 credits not tied to interest rate chosen
RR Joker
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10K Club
Joined: Nov 2000
Posts: 18,762
Central City, NE
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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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#1474140 - 12/01/10 02:01 PM
Re: Block 2 credits not tied to interest rate chosen
David Dickinson
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Member
Joined: Aug 2002
Posts: 72
MI
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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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Dee
CAMS, CRCM
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#1474179 - 12/01/10 02:40 PM
Re: Block 2 credits not tied to interest rate chosen
deeb
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10K Club
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
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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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The opinions expressed are mine and they are not to be taken as legal advice.
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#1646410 - 01/05/12 03:44 PM
Loan Closing today - No Cost loan fee changing
deeb
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100 Club
Joined: Jan 2011
Posts: 170
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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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#1656414 - 01/26/12 04:29 PM
Re: Block 2 credits not tied to interest rate chosen
David Dickinson
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Diamond Poster
Joined: Apr 2002
Posts: 1,677
SmallTown, USA
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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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The opinions expressed are mine and do not necessarily reflect those of my employer.
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