Service Provider List

If a bank does not allow the borrower to shop for third-party settlement services, no written list of identified providers is given to borrower, what pitfalls do you have to consider? I know you will have live within the 10% tolerance. What else?

None that I know of. That's how we're handling all RESPA loans except for purchase money and refi's sold on the secondary market and initial construction loans. All other loans.....borrower has no choice....we pick.

Ditto what Swiggles stated. There are no categories where we allow the customer to pick the service provider - hence no list is required.

Is this an accurate statement? the lender is bound by the 10% tolerance rule for title services if we do not allow our borrower to shop (which also means we don't need to provide a list). We generally use the same handful of title service providers and I'd prefer not to have to provide a list. In rare instances (when doing a piggy back second to purchase - a different lender is doing the first- the seller usually chooses the title company) we usually have little control over who is chosen. Are we still bound by the 10%? If the answer is yes, then I see this as a potential downfall to not having a list. We would just have to work harder to obtain the fees from the title company being used so we don't exceed the tolerances.

I think it is very clear if no list is provided, then it is assumed the customer could not shop and you are bound by the 10%. This is stated on HUD’s web site in their training material.

We have the same question/ problem you described when the seller chooses the title co. In our state, law requires that the seller of the property has the right to purchase title insurance from any title company these choose. Consequently, in a purchase mortgage transaction, the closing also occurs at that title company and our borrower must pay the title services fees charged by the title company (selected by the seller). While technically, the borrower can't shop for this service, the Bank doesn't pick the title company either. I’m thinking we provide a list of approved title companies for the borrower to shop from, but if the borrower ends up using another title company (selected by the seller), then we argue that the fees would not be subject to a tolerance and can change by any amount on the HUD-1 from the GFE, since the borrower ended up not using one of the providers on the lender provided list. It may not be exactly what HUD had in mind, but I’m not sure how else we would do it.

SueL, I agree with your analysis.

I'd go even further and just put one title company name on the list thereby increasing the chances of not having to deal with the tolerance. Per the HUD training session on 12/7, you only need list one provider. They expanded on that to say you'd usually name the one that you got the cost you're using on the GFE from. Then if the buyer, through the seller, chooses a different title company, you're off the tolerance hook.

What if you have an affliated title company? Does this change the need to give a Service Provider list to the customer?

No, but you can't require the borrower to use the Affiliate. If you put them on a list of recommended providers, you also trigger the AfBA disclosure.

So, let me get this straight. If we do not provide a list of title companies to our customers because we are going to select the title company ourselves, we cannot select our affiliate because we cannot require the customer to use our affilate?
We have about 10 to 15 different title companies we use and one of them is an affiliate. We are thinking about not allowing the customer to shop, but that is in conflict with our "affiliated business arrangement disclosure statement". So, we must provide a list and let the customer choose so that we may keep our affiliate in the ball game?

Correct. You can never slam dunk an affiliate.

You could list the Affiliate on your provider list - and only list them, but you are still allowing the customer to choose.

I want to make sure I understand this. The example of services in Block 6 are survey and pest inspections, but if we do not allow the customer to shop for these services, should they be listed in block 3?

We do not want to use any more list than needed. The way our forms are set up when the amounts in block 6 transfer to the 1300 series of the HUD it is automatically an unlimited tolerance. Th lady who is doing our testing said she cannot figure out how to change the tolerance depending on whether or not the choose from a list.

If you don't allow them to shop, list it in Block 3.

Really?? We can only put one provider on the list? There will not be any implications?

We have about 5 title companies that we use in town. But only one has a quoting spreadsheet we can use to accuratly estimate the Title Insurance & fees. So your saying we could just list this one company on our provider list?

HUD says there is no minimum for the list. A lot of lenders are considering listing only one so they don't have to keep up with multiple pricing sheets. Remember if they pick a provider on your list, you're bound to the 10% tolerance, so if your list has more than one provider, you would have to use the highest fee among them or be prepared to refund money.

David, I concur with the logic of your statement but every reference I have found in both the Reg and the FAQ indicates that Title Services and Owner's Title policies have to be listed in Block 4 and 5. I have not found an allowance (exception) to list these services in any other block.

From Appendix C:

Block 3, "Required services that we select." – In this block, the loan originator must identify each third party settlement service required and selected by the loan originator (excluding title services),

Would you concur that for Title Services and Owner's Title policies they have to be listed in Blocks 4 & 5 regardless if you choose the provider?

We are attempting to prepare our service provider list. Does anyone have a sample they would share?

Also, want to just say thanks to every person that answers questions on BOL. BOL has been a life saver.

Not that my opinion matters, but I agree with Dan. The only "shop for" section referred to in the instructions is box 6. Boxes 4 & 5 are specifically for title services and insurance, and I don't see a requirement that the bank HAS to let the borrower shop for a provider. The instructions just indicate that everything title related has to be listed regardless of who selects the provider.

Dan: I was referring to Joeball's post about pest inspections. Not title insurance. I agree with you.

What if the only title insurance agent in a county is our affiliate? Then what?

We have chosen to list one service provider on our shopping list. Fortunately, our origination system automatically prints this list out with the GFE for the Loan Officer.

You can list your affiliate as the only service provider, but must distribute AfBA disclosure. -Per HUD Plain English webinar.

The bank has three attorneys on their list and plans to disclose the highest fee on the GFE. If the borrower chooses one of the attorneys from the list who had a lower fee, would that be a changed circumstance for a revised GFE? Thank you.

No. Page 16 of the FAQs.

Thank you. Another question, is anyone showing the fees on the provider's list? I'm not seeing a lot of guidance on this and we thought we would not; however the bank thinks we ought to do so. Just wondering what others are doing. Thank you.

There is no guidance on this. I think it's up to you and it maybe something you do and then change later.

Jan, I would recommend not posting the provider's fee on the list because of different variables that could affect the final fee, but as David said there is really no guidance and is a choice for you to make. However if you do decide to post fees then I would make sure there is a disclaimer the fee is based on information provided by the provider as of XX/XX/XXXX and are subject to change. I also might even go so far as asking the provider if they have any objections to posting their fee on the list.

I would suggest you do not show fees on your provider list for a different reason, or actually Dan elluded to it above.

If there is a $50 difference in fees, you are setting yourself up for a PR nightmare with your valued settlement agents due to the customer being drawn to the lower fee.

Quick (dumb) question - If a borrower chooses a provider NOT on the list, thus their fees would not be subject to the tolerances, does that service provider's fees then get included in the third comparison table on the last page for fees with no tolerance, or do we not show their fees on any of the tables?

Nevermind - found my answer. Yes, they get included on the third table.

I'm am sorry to bring this back up, but if you can't require the use of an affiliate, then why do they have option "b" on the RESPA Affiliated Business Arrangement Disclosure Statement Notice form?

[B.] Set forth below is the estimated charge or range of charges for the settlement services of an attorney, credit reporting agency, or real estate appraiser that we, as your lender, will require you to use, as a condition of your loan on this property, to represent our interests in the transaction.

Because selecting an affiliated title company violates the regulation:

1024.15(b)2) No person making a referral has required (as defined in §1024.2, “required use”) any person to use any particular provider of settlement services or business incident thereto, except if such person is a lender, for requiring a buyer, borrower or seller to pay for the services of an attorney, credit reporting agency, or real estate appraiser chosen by the lender to represent the lender's interest in a real estate transaction, or except if such person is an attorney or law firm for arranging for issuance of a title insurance policy for a client, directly as agent or through a separate corporate title insurance agency that may be operated as an adjunct to the law practice of the attorney or law firm, as part of representation of that client in a real estate transaction.

See Randy's post. The 3 I highlighted are the exception mentioned.

My affiliate is an attorney, not a title company. So, the way I am reading RESPA and what you all have said above, I CAN require a particular attorney, even if that attorney is an affiliate.

Do I have that right?

That's always been my understanding, DD. ARound here, we also use attorneys, not title companies...and I've not ever known of it being any problem and I base that on KB's highlighted area above.

Maybe someone else will chime in so you can get a 'concensus'.

You can require the attorney, appraiser or credit bureau of your choice even if an affiliate (RESPA def of affiliate) provided you give the affiliate disclosure. You cannot require any other provider. The attorney can require a title company because they usually only work with one.

Thanks to you all for helping me.