Answer by Linda Westfall
RESPA prohibits the bank from paying or receiving any portion of a chargefor a settlement service other than for services actually performed.According to HUD, taking an application is not sufficient work to justify afee.
HUD has issued an unofficial interpretation to help affected parties determine whether sufficient work has been performed to justify a fee. The interpretation lists the following 14 services normally performed in the origination of a loan:
- Take information from the borrower and fill out the application.
- Analyze income and debt to determine the maximum mortgage the borrower can afford.
- Educate the borrower about the home buying process, advise them about different types of loan products available and demonstrate how closing costs and monthly payments would vary under each product.
- Collect financial information and other related documents that are part of the application process (tax returns, bank statements, etc.).
- Initiate and order verification of employment and deposits.
- Initiate and order requests for mortgage and other loan verifications.
- Initiate and order appraisals.
- Initiate and order inspections or engineering reports.
- Provide disclosures to the borrower (truthinlending, good faith estimate, etc.).
- Assist the borrower in understanding and clearing credit problems.
- Maintain regular contact with the borrower, realtors, and lender between application and closing to apprise them of the status of the application and to gather any additional information as needed.
- Order legal documents.
- Determine if the property is in a flood zone.
- Participate in the loan closing.
No violation would exist if, in addition to taking the application, the third party performs five or more of the listed compensable services and the fee is reasonable.
If the third party is taking the application and performing only the "counselingtype" services in 2, 3, 4, 10 and 11, HUD would verify that meaningful counseling has occurred rather than "steering" the customer. Acceptable counseling would give the borrower the opportunity to consider products from at least three different lenders. The counselor would receive the same compensation regardless of which lender's products were selected and any fee would have to be reasonable for the services performed. The fee could not be based on the amount of loan business referred to the lender.
Answer by Andy Zavoina
In FR 24CFR 03/01/99 FINAL 64 FR 10080 Real Estate Settlement Procedures Act (respa) Statement Of Policy 19991 Regarding Lender Payments To Mortgage Brokers; Final Rule it states:
In the determination of whether payments from lenders to mortgage brokers are permissible under Section 8 of RESPA, the threshold question is whether there were goods or facilities actually furnished or services actually performed for the total compensation paid to the mortgage broker. In making the determination of whether compensable services are performed, HUD's letter to the Independent Bankers Association of America, dated February 14, 1995 (IBAA letter) may be useful. In that letter, HUD identified the following services normally performed in the origination of a loan:
(a) Taking information from the borrower and filling out the application;4
4 In a subsequent informal interpretation, dated June 20, 1995, HUD stated that the filling out of a mortgage loan application could be substituted by a comparable activity, such as the filling out of a borrower's worksheet.
(b) Analyzing the prospective borrower's income and debt and pre qualifying the prospective borrower to determine the maximum mortgage that the prospective borrower can afford;
(c) Educating the prospective borrower in the home buying and financing process, advising the borrower about the different types of loan products available, and demonstrating how closing costs and monthly payments could vary under each product;
(d) Collecting financial information (tax returns, bank statements) and other related documents that are part of the application process;
(e) Initiating/ordering VOEs (verifications of employment) and VODs (verifications of deposit);
(f) Initiating/ordering requests for mortgage and other loan verifications;
(g) Initiating/ordering appraisals;
(h) Initiating/ordering inspections or engineering reports;
(i) Providing disclosures (truth in lending, good faith estimate, others) to the borrower;
(j) Assisting the borrower in understanding and clearing credit problems;
(k) Maintaining regular contact with the borrower, realtors, lender, between application and closing to appraise them of the status of the application and gather any additional information as needed;
(l) Ordering legal documents;
(m) Determining whether the property was located in a flood zone or ordering such service; and
While this list does not exhaust all possible settlement services, and while the advent of computer technology has, in some cases, changed how a broker's settlement services are performed, HUD believes that the letter still represents a generally accurate description of the mortgage origination process. For other services to be acknowledged as compensable under RESPA, they should be identifiable and meaningful services akin to those identified in the IBAA letter including, for example, the operation of a computer loan origination system (CLO) or an automated underwriting system (AUS).
You should review the entire opinion to determine how this applies to you.
First published on BankersOnline.com 5/7/01