RESPA QUESTIONS and ANSWERS

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1 What follows are unofficial answers to the questions received by the TLTA-IBAT Panel in connection with the two February Line by Line webinars. Thanks to everyone for sending in such great questions. Hopefully you will find these responses helpful. GFE General Questions What cure options are available, prior to closing, if we have issued an initial GFE with correct fee amounts, but entered in the wrong block (i.e. the fees should have been included in Block 1, but were instead itemized in Block 3)? Response: The cure would be to disclose the fees in the correct areas of the HUD-1 at closing, and then cure any tolerance violations that result. Once the GFE is provided and the consumer elects to proceed with the transaction within the shopping period (minimum of 10 business days after receiving the GFE), a revised GFE showing an increase in the Block 1 amount cannot be provided unless there is a valid changed circumstance that justifies an increase in that amount. An error, a misreading, or a misinterpretation of the applicable RESPA disclosure requirements would not be changed circumstances as defined in RESPA and the HUD FAQ document. For example, absent a valid changed circumstance the RESPA regulations would not allow a loan originator to issue a new GFE that reduces the fees in Block 3 and increased the fees in Block 1, even if the net dollar result to the applicant does not change. Effective there was a statement we started providing on our GFE which stated You are not required to complete this agreement merely because you have received these disclosures or signed a loan application how should this be disclosed now & at what point? Response: That statement is not required by RESPA, and should not be included on the GFE. That type of wording is generally required on the preliminary Truth in Lending (TIL) disclosure and on any corrected TIL disclosures that are provided, as specified in the TIL regulations. See reference below. Reference: TILA, Regulation Z, 12 CFR (a)(4): Notice. Disclosures made pursuant to paragraph (a)(1) or paragraph (a)(2) of this section shall contain the following statement: You are not required to complete this agreement merely because you have received these disclosures or signed a loan application. The disclosure required by this paragraph shall be grouped together with the disclosures required by paragraphs (a)(1) or (a)(2) of this section. I prepared a preliminary 2010-HUD yesterday for a lender (MHU purchase transaction) and upon asking for a GFE she said that they would provide it once the HUD was approved/finalized. They plan to have the customers sign the my office or MHU retail location 3 days prior to closing. What do you think about that? The practice they propose is not in keeping with RESPA regulations that require the GFE to be delivered to the borrower no more than three business days after the lender receives the information that by the new definition constitutes an application for the loan. Additionally, there is no RESPA requirement that the GFE be signed and HUD has specifically indicated that signature lines are not to be added. Page 1 of 32

2 During the application process, does any other information deemed necessary by the Loan Originator include additional income information such as cash flow statements or tax returns? Response: For application of a loan, in addition to the six items listed in the RESPA rule the lender can require additional information to meet their application guidelines. This will vary by lender. Once the 6 items listed in the RESPA regulations are received, plus any additional information deemed necessary by the loan originator to constitute a loan application, the GFE must be issued within three business days and the lender can t delay issuance by requiring more documentation. Note in particular that RESPA does not permit a lender to require, as a condition for providing a GFE that an applicant submits documentation to verify information contained in the application. [Regulation X Section (a)(5)]. GFE Important Dates First, wanted to clarify that the period of time in the Important Dates section for number 2 is supposed to reflect 10 business days, is this correct? The example in the program slides seems to indicate 10 calendar days. Response: Yes, the relevant estimated charges must be available for 10 business days. RESPA defines business day as a day on which the offices of the business entity are open to the public for carrying on substantially all of the entity's business functions. [RESPA, Regulation Z, 24 CFR (b)]. The fictional business used in the example was apparently open to the public for conducting its business 7 days a week. Seriously, thanks for pointing this out. We will consider using a more realistic example in the future. The newest HUD FAQs states this, I believe, but just would like to confirm no matter how many times we reissue a GFE (for changed circumstances), the date in line 2 of the Important Dates stays the same as the original 10 business days date quoted on the first GFE? So, eventually, the date of your GFE could post date the date on line 2? Response: Yes, that is how we interpret the relevant FAQ item. Reference: HUD FAQ Document, GFE-Important dates, Question #12 (Page 22 of the 01/28/10 version) GFE Loan Terms My understanding from the FAQ s is that if a loan has interest only payments for a period of time and then P & I, that the interest only payment is what is reflected here, is that correct? Response: We believe the interest only payment would be reflected. In addition, since the payment amount will increase later to include both principal and interest, that needs to be disclosed by answering yes and filling in the relevant details in the box titled Even if you make payments on time, can your monthly amount owed for principal, interest and any mortgage insurance rise? Page 2 of 32

3 On an adjustable rate mortgage, when calculating the maximum amount to which the payment can rise, what calculation method should we use to obtain this highest payment amount? We currently take the original loan amount, calculated by the amount of the highest interest rate that could occur on the loan and we use the original loan term. Is this method acceptable or are we supposed to use an amortization schedule to determine the estimated principal balance at the time that the interest rate could reach its highest point and calculate the payment on the remaining term of the loan? Response: 1. For an ARM loan, determining an accurate maximum payment amount requires amortizing the loan balance over time in conjunction with stepping up the interest rate and payment as permitted under the loan documents (considering the timing of rate and payment changes, any adjustment caps and related loan provisions) until the maximum payment is reached. 2. If a lender calculates the maximum payment amount on an ARM loan using the original loan amount, highest possible interest rate, and original loan term, the result will generally be somewhat higher than the more accurate result calculated as noted in 1 above. However, if the loan permits negative amortization the result could be either lower or higher than the result in 1 above, depending on the nature and extent of the negative amortization. In general, calculation 2 above is not completely accurate, and could be subject to questions from investors or regulators should they investigate at that level of detail. However, it is not clear how strict investors and/or regulators will be on this calculation issue. We do not collect interest at closing, so our first installment is not a regular payment, should we disclose the first installment or the regular payment? Response: The GFE and the related rules and FAQs do not address how to disclose transactions in which the odd days of per diem interest is added to the first payment instead of being collected at closing. We believe that the intent of the GFE is to show the regular initial monthly payment amount that will be due, not including any odd-days of interest that may be added into the first payment. However, there is no firm guidance from HUD on that point. We recommend that you consult with your compliance officer, legal counsel and/or investor to determine the approach that is best for your company, based on your business practices. We do adjustable rate loans with a floor of 5.0% and a ceiling of 12% with no caps per year. How do we fill in the blanks on Page 3, can the interest rate rise? Every change date your interest rate can increase or decrease. Response: This question is answered in HUD s FAQ document as follows: If the loan offered does not contain a cap of periodic interest change other than by setting the overall floor and ceiling, the loan originator should complete the answer to the question, Every change date your interest can increase or decrease by % with the difference between the floor and the ceiling. Page 3 of 32

4 Prepayment Penalty-We charge one based upon the market interest at the time of prepayment, so that cannot be calculated, what should we put? Response: We don t believe this is addressed specifically in the regulations or FAQ document, but it sounds like it should be treated in the same way an ARM calculation is treated. As a result, until this is addressed by HUD, base the calculation on the rate on the initial rate at the time of closing. Interim and Construction Loans GFE Isn t it true that if the construction loan is truly a temporary financing (not a one-time close) it is not governed by RESPA? Response: Very true, but if the temporary and permanent loans are being made by the same lender, both are regulated by RESPA. This is an important distinction as smaller banks are more likely to do real temp financing but not make the permanent loan, in which case the construction loan would generally not fall under RESPA regulation. The RESPA exemption for temporary financing does not apply to a loan made to finance construction of 1- to 4-family residential property if the loan is used as, or may be converted to, permanent financing by the same lender or is used to finance transfer of title to the first user. If a lender issues a commitment for permanent financing, with or without conditions, the loan is covered by RESPA. Any construction loan for new or rehabilitated 1- to 4-family residential property, other than a loan to a bona fide builder (a person who regularly constructs 1- to 4-family residential structures for sale or lease), is subject to RESPA if its term is for two years or more. What is the correct way to state the initial monthly amount owed for principal, interest, & any mortgage insurance on construction loans? Response: First note that temporary financing loans, including certain construction loans, are exempt from RESPA. See Applicability of RESPA at the end of this document. If the loan originator determines that the construction loan is subject to RESPA then they must complete the new GFE, filling in the initial monthly payment amount as required by the RESPA rule. Unfortunately the RESPA regulations do not provide any further guidance on this subject. We recommend that loan originators consult with their compliance staff and/or legal counsel to determine the best way to make this disclosure based on the specific terms and conditions of the construction loan product in question. On page one of the GFE it requires a monthly payment for principal and interest. What should go in that box for a construction loan that is set up with no monthly payments? Response: Regardless of the type of loan, the loan originator must fill in the initial monthly amount owed for principal, interest, and any mortgage insurance. The amount shown must be the greater of: (1) The required monthly payment for principal and interest for the first regularly scheduled payment, plus any monthly mortgage insurance payment; or (2) the accrued interest for the first regularly scheduled payment, plus any monthly mortgage insurance payment. Page 4 of 32

5 Here is a sample transaction fairly typical within our bank, and related question: Customer applies for an interim to permanent home loan to construct his/her residence. The bank provides the interim financing for the construction loan, and then the bank originates and funds the permanent phase of the loan, finally selling it to an investor after closing. At the time of application, as we interpret it, the customer is due a GFE, since he is applying for interim/perm financing through the bank. We include the 60 day new construction disclosure with the GFE. The question: Is the bank obligated to provide settlement cost information on the interim transaction? Obviously, these costs are separate and different from the costs of the permanent transaction. If the bank is obligated to provide this information, should it be provided as two separate GFEs at the time of the application or a combined GFE (which wouldn t compare with either HUD)? There are two closings for these transactions, and as a practical matter, the disclosures would be provided by two separate departments in the bank, which could complicate/confuse the disclosure completion (ie. pg 1, Summary of Your Loan). Response: If the bank interprets that the customer is due a GFE, then the bank considers the transactions to be subject to RESPA. As such, all settlement costs must be included on the relevant GFE. Since there are two separate loan transactions and two separate closings there should be a separate GFE and HUD-1 for each transaction. GFE Block 10 Block 10 Can NA be used here if we do not collect interest at closing? Response: If the loan originator estimates that no interest will be collected at settlement we suggest that a zero (0) be placed in this block on the GFE. Seller Charges Do Seller charges such as escrow fee, doc prep for Deed and Release, tax certs, and so forth need to be disclosed on the GFE? Response: Charges such as you mention (seller s portion of the escrow fee, document preparation of the Deed and curative matters and tax certificates) that in Texas typically would not be charged to the buyer, but would be charged to the seller, do not have to be included on the GFE. As a result, these charges may be charged to the Seller in the column on Page 2 of the HUD-1. In all instances, however, regardless of whether the contract requires the seller to pay for the service, the charges for title services and lender s and owner s title insurance must appear on the GFE. As a result, these charges must always appear in the borrower s column on Lines 1101 and 1103 of Page 2 of the HUD-1 and, if to be paid by another party, as a credit to the borrower on Page 1. Reference: 01/28/20 HUD FAQ document, Pages 11-12, GFE Seller paid items - #2. Page 5 of 32

6 Borrower Allowed to Shop the List If the bank is preparing a GFE, and has the earnest money contract in hand, which includes a title company required for closing that is not the title company that the bank includes on their written provider list ( this provider may be selected by the borrower), does the bank still need to provide the written list to the borrower with the GFE in order for the no tolerance limit borrower may shop provision to apply to those fees? Response: If the lender permits the borrower to shop for title services they must provide a list showing at least one provider for those services. If the borrower selects, or has selected, a provider that is not on the lender s list the unlimited tolerance applies to the charges for that provider. In general, the lender is not a party to the purchase contract and the lender s RESPA obligations are not changed based on those contract provisions. If the transaction closes with the title company provider on the bank s list, but the title company was already selected prior to the GFE by the agreement in an earnest money contract, is the bank still bound by the 10% tolerance for the provider? Response: If a provider shown on the lender s written list of providers is used for the indicated service, those charges are subject to the 10% tolerance. It does not matter when or how the provider is selected. If the borrower does not choose the title company on the lender s provider list is that a changed circumstance? Response: If the borrower selects someone not on the list - the costs are in the "these charges can change" or unlimited tolerance bucket - so there is no need to deal with a "changed circumstance" or a revised GFE. Selection of a title company or any service provider not from the list does not constitute a changed circumstance. Selection of a title company or any service provider that the borrower may shop for only changes the tolerance "bucket". If the consumer chooses a service provider on the list, for services in Block 4, 5 or 6, it is in the 10% tolerance bucket. If the consumer chooses a service provider not on the list for these services, it is in the unlimited bucket. How can a borrower shop if there is only one provider listed? Response: If the borrower is allowed to shop, he may choose any provider of the service, not just those identified by the lender. The Service Provider List is merely a referral by the lender. It does not limit or prohibit the borrower from going elsewhere for the service. How does the name of a service provider get known to the borrower if it is not on the provider list? Response: Service providers come to the attention of the borrower in the same way they have done in the past. Appearing on the lender s Service Provider List is just one more way for a service provider to reach the attention of the borrower. It is important to note, however, the borrower is told that the lender will not be held to the 10% aggregate tolerance if the borrower chooses to use a provider whose name does not appear on the list. Page 6 of 32

7 Is the lender to provide a service provider list with closing instructions for each loan? Response: First, the lender must provide the borrower with the service provider list at the time the original GFE is issued. At closing, the lender must provide the title company with sufficient information to determine if the borrower selected providers from the list. This will probably vary from lender to lender, but the information can be given by providing a copy of the final GFE and a copy of the Provider List to the title company. Lender Fees On Line 801, the origination fee, I understand that the attorney fee for preparation of borrower s docs is part of this figure. Would we also add the borrower closing fee in with the attorney fees or should it go down in Line 1102? Response: If you are referring to the escrow or settlement fee charged by the settlement agent, that is not part of the origination services provided by the lender. The fee charged to the borrower by the settlement agent for handling the transaction is part of the Line 1101 Title Services and lender s title insurance charge. If a lender did not disclose the $150 doc prep fee in the origination charge and is over an additional $350 in the 10% tolerance bucket, is the cure amount based on the amount over the 10% PLUS the $150 doc prep fee or is it just the amount over the 10% amount? Also, can the origination charge be reduced to cover the shortage? Response: Lines 801, 802, and 803 of the HUD-1 form each have a separate zero percent (0%) tolerance threshold. The 10% tolerance threshold is calculated separately from any of the 0% tolerance items. Cures are required for each tolerance violation. For example, any tolerance violation at line 801 must be cured in addition to any tolerance violations in the 10% tolerance. The loan originator can reduce the origination charge they will collect at closing to match the amount disclosed on the GFE to avoid having a tolerance violation for line 801. Any other tolerance violations must be cured separately. For some time now, we have charged only 3 fees (underwriting, processing and closing), and have not made a specific charge for credit report, tax service or flood cert). The FAQ s have some vague language regarding fees paid to 3 rd parties, so we want to know if there is any need for us to show those items on our GFE as 3 rd party charges, even though no fee will be collected at closing. Response: If the services are not required for the loan transaction then they need not be shown on the GFE. However, if the services are required but are being paid for by the bank on behalf of the borrower then we believe those fees should be shown on the GFE in the proper location(s), and either 1) a credit from the bank to the borrower would be shown on page one of the HUD-1 to cover the fees the lender is paying, or 2) a pricing premium based on the interest rate the borrower selected could be shown in Block A of the GFE and line 803 of the HUD-1 (as a negative number) to cover those costs. Reference: HUD FAQ Document, 01/28/10, Page 11, GFE - General, Question #32. Page 7 of 32

8 And, I am still trying to clarify a couple of fees, and whether they go in Block 1 or Block 3 of the GFE. Fee for 4506Ts Tax Transcripts (paid to a third party, but used in the underwriting process) Fee for Fraud Protection Service (paid to our investor for the underwriting process) Fee for independent third party review of appraisal Fee for Employment Verification (this may be paid to a third party, but used in the underwriting process) Response: We believe that the above charges are origination, processing, and administrative charges for services performed by or on behalf of the lender, and should be included in Block 1 of the GFE. References: HUD FAQ Document, January 28, 2010 version, page 26, GFE-Block 1, Question #9 HUD FAQ Document, January 28, 2010 version, page 25, GFE-Block 1, Question #2 A lender (one of the big 3) is showing typical loan fees such as flood and tax service on their GFE in Block 6, and tells us to show those fees in the 1300 series. The fees are payable to an affiliate of the lender. Is it possible for these fees to be shopped for, and do we just prepare the HUD the way they instruct us? A lender one of the biggies is providing a Service Provider List to their Borrowers including listings for tax certification and flood certification companies. Because these are now "Charges that the Borrower can shop for," the lender is requiring that they be shown in the 1300 section. This is so contrary to everything we have done in the past. Is that is AOK? One of the major lenders is providing a Service Provider List with two listings each for tax service and flood certification companies. The fine print on the list indicates that if the borrower doesn t want the lender s affiliate to be used, the other listing will be used. The lender seems to consider this to be shopping and is putting those estimates in Block 6 of the GFE and telling the settlement agent (and all correspondent lenders) they must be shown in the 1300 Miscellaneous Series on the HUD-1. If the borrower can t use a provider other than the two on the list, does this meet HUD s definition of shopping? Response: Unless the lender actually is allowing the borrower to select the flood and tax services not just including them on a shopping list and not just allowing a borrower to choose between two named entities but actually allowing them to choose someone who is not on the list they are improperly preparing the GFE by showing them in Block 6, rather than Block 3. A settlement agent should be unwilling to show services required by the lender and for which the borrower had no ability to shop in the 1300 series of the HUD-1. That sounds way too much like a loan originator who is trying to hide loan fees from someone in the secondary market - who would not look for "loan fees" in the 1300 series. Appendix A is specific that these fees go on certain lines in the 800 series - and Appendix C is specific that they are to be included in Block 3 on the GFE. As a result, it seems particularly non-compliant to put flood and tax services in Block 6 of the GFE or in the 1300 series on the HUD-1. However, we understand that this particular lender will not allow closing or funding unless the settlement agent follows their instructions to (improperly) include those lender fees in Line 1301 on the HUD-1. As a result, in the interest of the consumer, if you have clear documentation as to the lender making this demand, go ahead and follow their instructions to get the loan closed/funded. Hopefully this practice will be reviewed/revised by HUD in the near future. Page 8 of 32

9 We also are still a little confused on the flood determination on the new GFE. If we show it under 3 required services that we select does that amount effect the APR? All other fees effecting the APR are shown in 1 Our origination charge. Response: Regulation Z governing truth-in-lending and Regulation X governing RESPA are two entirely separate federal regulations. APR and Finance Charges are Regulation Z requirements and have no bearing on the placement of fees on the GFE. Certain fees other than the origination services, including flood determination and certain title company fees are considered to be finance charges under Regulation Z. Flood Determination, whether in Block 1 or 3, is a finance charge under Regulation Z. Can the payee for providers in Block 3 still be shown as Lender Name FBO (For the Benefit Of) Service Provider Name? Response: Unfortunately, HUD has not yet addressed this issue either in the Regulations or in their FAQ document so it is currently up to interpretation by the industry. Here are the responses of two of the panel members: One panel member says Yes BUT I have an investor who keeps kicking loans back if the HUD shows FBO. I think it is necessary to include the FBO language to indicate this is a pass through fee and not a fee paid directly to the Lender. We agree with the other panelist, a third party fee can be shown payable to the third party provider and/or the lender FBO third party provider. As long as the third party provider is referenced, it is our interpretation that this meets the requirements of Appendix A to RESPA to indicate who the fee is ultimately paid to. One of the male panelists made a comment about May 1 in reference to itemization of items on line 801. Would he please repeat that? Response: VA requires the itemization of all fees included in line 801, either in the 800 series or on a separate origination statement. Please refer to the VA Circular Memo on that topic, which can be found at the following link: The handout says that Lines 804, etc. will show "Fees payable to third party other than Originator." Many lender closing instructions are requiring title companies to list out each of the Originator's charges included in the 801 charge as separate line items in the 800 section, such as: - Origination Fee - Processing Fee - Underwriting Fee, etc. Can we add additional series 800 line items to show fees payable to the Originator? Response: The RESPA regulations and HUD s FAQs make it plain that the lender s own fees (fees paid to the lender and included in Line 801) should not be itemized unless required by state law. Page 9 of 32

10 Does Texas State Law or the Texas Department of Insurance (TDI) require itemization of charges included in 801? Response: The Texas Insurance Code says that the settlement statement must show the name of any person receiving any amount from a party to the transaction, must show all items so disbursed, and must itemize the charges imposed. [Texas Insurance Code Section ] For example, fees for preparation of the lender s legal documents to be paid to an attorney (rather than the lender) must be included in the total at line 801 but must also be itemized in the 800 series outside the column. On a refinance loan, can we include in the 800 series the interest and late charges due on the loan being paid off? Response: No, all items payable in connection with the loan being refinanced (paid off) should be included in the Loan Payoff figure on Page 1 of the HUD-1 and will not be included in any of the estimates on the GFE issued by the lender. Our bank uses the same title company and attorney to prepare legal docs and issue title policies over and over. Still confused as to What the attorney charges to prepare note/deed/etc. block 1 or block 4? Title company escrow fee/courier/delivery/wire fee - block 1 or block 4? Response: Regardless of whether your bank always uses the same attorney and title company - or different ones - the charges you asked about always go into the same Blocks on the GFE. What the attorney charges to prepare note/deed/etc. block 1 or block 4? The charge by the attorney for preparing "loan documents" which would include the Note and Deed of Trust, but not a Deed - is part of your "origination charge" in Block 1 of the GFE The charge by the attorney for preparing a Deed from a Seller to a Buyer - would not generally be included on the GFE because in Texas, that fee is "customarily paid by the seller" The charge by the attorney for preparing curative legal documents, which could include a Deed or Release, etc. does not go on the GFE for a purchase money loan because those would also customarily be charges to the Seller. The charge by the attorney for preparing curative legal documents on any loan that is not for purchase money would go in Block 4 of the GFE because they will be required services for the purpose of issuing the lender's title insurance. This type of attorney fee is often not known at the time of application - other than for the preparation of an assignment or release for a loan being paid off in connection with a refinance - and so may require a revised GFE as a result of "changed circumstances" when the lender finds out that curative documents are required. Title company escrow fee/courier/delivery/wire fee - block 1 or block 4? All charges by the settlement agent for the services required in connection with settling the transaction and issuing title insurance to the lender are in Block 4 of the GFE - including the services you mentioned. Are UCC fees on interim construction loans included in block 3? The bank chooses the UCC company. Response: The charge for preparing UCC forms is Doc Prep and should be included in Block 1 of the GFE. The charge for recording the UCC forms is Government Recording and should be included in Block 7. If a search of the UCC records is required, the charge for this search should be included in Block 3. Page 10 of 32

11 Does the Appraisal Fee from an outside appraiser, credit report fee and flood determination fee need to be totaled in the 801 section or listed in the 800 section, not totaled in 801. Response: If these are services provided by someone other than the lender, then these would be shown in the 800 series as charges paid to each individual provider. If any of these services are done in-house by the lender, it should be included in Block 1/Line 801 and would not be itemized. Would flood fees go in block 1 as a 3 rd party fee? Response: Define flood fees. If we are talking about Flood Cert Fees or Life of Loan Flood Certs AND those fees are paid to a third party, then it is Block 3. Required Service, Lender Selected. Under unusual circumstances, if the lender did this as an in-house process and the cost is paid to the lender, then Block 1. I think this would be very rare. Home Equity Loans How do we disclosure fees on a Home Equity loan when we charge a 3% origination fee? This is the only amount that's collected. Response: All loan originator fees must be included in Block 1 of the GFE (HUD Line 801), so if the lender is collecting a 3% origination fee that amount must be included in GFE Block 1 and on HUD Line 801. Reference: RESPA, Regulation X, 24 CFR Appendix C to Part Instructions for Completing the GFE, Specific Instructions Block 1. If the full 3% origination charge is shown in Block 1 (HUD Line 801), do we also list the individual charges in each other block? Response: We are not sure which individual charges you reference. If the only amount that is collected by the loan originator is the 3% origination fee then there are no other individual charges to list. However, keep in mind that the attorney s loan document preparation/review fee must also be included in the total in Block 1 of the GFE and on HUD Line 801, but must also be itemized outside the columns on the HUD-1 on an additional line in the 800 series. In addition to the 3% fee, title fees and title insurance are listed in Blocks 4 and 5; etc. On our question regarding whether fees should be broken down on a home equity loan where only a 3% fee is collected. I know we would put the 3% fee in Block 1 of the GFE. All charges for appraisal, flood fee & tax service fee are paid out of the 3% fee and no other amount is collected from the customer. Do these charges still need to be listed in Block 3 of the GFE? In Block 4, do we list the charge for the property report which is also paid out of the 3% fee? Response: If third party services are required but are being paid for by the bank on behalf of the borrower then we believe the RESPA rule requires all of those charges to be shown on both the GFE and HUD-1 forms in the proper location(s), and then show a credit from the bank to the borrower on page one of the HUD-1 to cover the fees the lender is paying. Reference: HUD FAQ Document, January 28, 2010 version, Page 13, GFE - General, question #32. Also, how should these same amounts be listed on the new HUD1? Response: All charges should be shown in the proper location(s) on Page 2 and a credit from the bank to the borrower would be shown on Page 1 to cover the fees the lender is paying. Page 11 of 32

12 Ag Credit Loans We require our borrowers to purchase stock as a loan requirement. Should the purchase price of the stock be included in Origination Charge in Block 1 on Page 2 of the GFE and on Line 801 of the HUD-1? Response: This issue is not addressed either by the RESPA regulations or HUD s FAQ document. The argument may be made that this is not a fee since the borrower only exchanges money for stock. If required to guess, our guess would be yes since it is paid to lender and required for the loan. But this is only a guess! Keep in mind, also, that loans on 25 acres or more are not governed by RESPA, nor are loans secured by unimproved land. Document Preparation Loan Documents One of the problems we are having is the attorney fee. We are including the attorney s fee in the Lenders Origination Charge on the GFE. Our problem is when the loan goes to the title company for closing they are disclosing the total of our fee and the attorney fee in 803; however they are also showing further down in the under the 800 s - Document Preparation to (our attorney s name) and the amount. I understand that you cannot put this on the HUD. The title company states they cannot issue a check payable to attorney unless they show it on the HUD. If the lender doc prep fee is included in the origination fee, but we also receive an invoice from the attorney, how do we comply with Texas Department of Insurance requirements if we have to create a check for paying that invoice? Response: RESPA rules require that the fee for preparing loan documents be included in the amount shown at line number 801 on the HUD-1 settlement statement. HUD s FAQ Document specifically says that if state law requires further itemization of loan originator fees than required under RESPA, those fees may be treated as other required disclosures and itemized on Line 808 and additional lines in the 800 series on the HUD-1 with the charge listed outside the borrower s column. [HUD FAQ Document, 01/28/10 version, Page 45, HUD Series, #7.] Under the Texas Government Code 83, no one but a licensed attorney may prepare legal documents (unlicensed practice of law). So if the doc prep fee is included in the Origination Charge Block 1/Line 801, it gives the appearance that the lender has prepared the legal documents which in turn would constitute the unlicensed practice of law. By disclosing the attorney fee in the 800 series (and in the 1100 series for title legal docs), this essentially gives notice that the documents were prepared by a lawyer and the Unlicensed Practice of Law statutes were not violated. Additionally, the Texas Insurance Code requires that the settlement statement include the name of any person receiving any amount from a party to the transaction, show all items so disbursed, and itemize the charges imposed. [Texas Insurance Code Section ] Therefore, to meet all Texas laws, a third-party document preparation fee should be itemized on an additional line in the 800 series, outside the columns (because the fee has already been included as a charge to the borrower in line 801). Page 12 of 32

13 Is it true that if the lender contracts for preparation/review of loan docs that this fee has to be part of their origination charge? Instead, what we are seeing is a requirement to show the fee for document preparation as a separate charge inside column in 804-8xx payable to one of the lender doc prep law firms. Response: We have seen this frequently from lenders who have not yet learned how to properly prepare their GFE - so failed to include the fee for preparation of loan documents in their Block 1 estimate, don't want to breach the 0% tolerance for that line - and don't want to "eat" the fee. Collecting the fee for preparation of legal documents on an additional line in the 800 series does not agree with the RESPA guidelines. However, if the settlement agent has written instructions from the lender to collect the fee for preparation of loan documents inside the column on a line higher than 808 question the lender and if they are adamant, document the file and follow the lender instructions to get the loan closed/funded - even though it is against the FAQs issued by HUD. We had a lender today require the loan doc prep fee (from a specific large doc prep law firm) be shown IN THE COLUMN. This lender s position is that in Texas the lender is required to have an attorney prepare and review the docs and this is how they show compliance. Yes, we have sent them the FAQs. But this lender is a behemoth and little-ole-us is not going to change their minds! And again today, more instructions from the same large doc prep law firm - representing a different lender and still requiring their doc prep fee in the column and requiring certain loan fees be in Section Clearly the doc prep law firm, not the lender, is the misinformed and is passing on the misinformation to the various lenders they represent. Can someone please call this firm and tell them they are wrong!!!! Response: If the written instructions from the lender instruct you to collect this fee from the borrower in addition to the 801/802/803 charge - follow the instructions. BUT KNOW that what they are requiring is not compliant with RESPA regulations, which specify that it is to be included in the lender's "own charge" and then disclosed outside the column if required by state law. At some point they will be told..... Document Preparation Documents Other Than Loan Documents In regard to the attorney/doc preparation fee: Where would we put the fees charged to the seller for curative docs (deed and release)? Would we show that in the 800 section of the HUD or the 1100, 1300 section of the HUD? Response: In a purchase transaction, the fees for preparing the Deed and curative documents are customarily seller expenses in Texas and would not be disclosed on the GFE. On the HUD-1 the fees would be collected in the Seller s column on an additional line in the 1100 series and handled in the same manner as in the past. In a loan only transaction, the fees for preparing curative documents should be included in the Block 4 estimate on the GFE and in the Line 1101 charge in the borrower s column on the HUD-1. Page 13 of 32

14 If we are supposed to put attorney fees in the origination charges, Block 1, then what type of attorney fees would be included in Block 4? Response: Attorney fees for services performed on behalf of the loan originator for document preparation/review must be included in Block 1 of the GFE. Attorney fees for services performed on behalf of the title company for title-related services would be included in Block 4. Reference: HUD FAQ Document, GFE-Block 1, # 6 and Block 4, #6 (Page 26 in the 01/28/10 version) Attorney Fees for Something Other than Document Preparation If the transaction is being handled by an attorney that charges a fee to the parties for reviewing and explaining the documents, does the lender need to disclose this fee in the GFE. It's not a doc prep fee. Response: If the borrower chooses to have optional legal counsel for his personal benefit, it would not be part of the lender's GFE estimate - and would be collected from the borrower - in the column - on an additional line in the 1100 series. To expand on and address all types of fees that might be charged by attorneys: Loan Doc Prep and legal documents required by the investor and having nothing to do with title requirements (such as trust and leasehold opinions, shared well agreements) should be included in GFE Block 1/HUD Line 801 and must then be also itemized outside the column in the 800 series on the HUD-1. Doc prep for title work and title curative will vary on the type of transaction. o o For a purchase in Texas, the customary charge for preparing deeds and releases goes to the Seller. It is not part of the GFE and is charged to the Seller in the column on an additional line in the 1100 Series, as in the past. If it is a refi, home equity (or other loan only transaction), attorney doc prep charges for releases, curative, etc. should be shown in GFE Block 4/HUD Line 1101 and must then be also itemized outside the column on an additional line in the 1100 series. If the attorney is independently hired to assist the borrower or the seller, that charge will not appear on the GFE and will be a direct charge in the column of the appropriate party on an additional line in the 1100 Series. Premium splits to an attorney for closing the transaction are included in the premiums in GFE Block 4/HUD Line 1101 and GFE Block 5/HUD Line 1103 and must be deducted from the amount on HUD Line 1107 and disclosed outside the column on an additional line in the 1100 Series. There are a number of references related to these subjects in the RESPA rule and/or the HUD FAQ Document. Page 14 of 32

15 Title Services Escrow Fee Pass-Through Fees Etc. It is my understanding that if the borrower chooses the title company for closing (especially refi's ) that the title insurance goes into GFE Block 6. Is that correct? Response: According to the Appendix C instructions for preparing a GFE, Title Services and lender s policy are always in Block 4 and owner s title policy is always in Block 5. It doesn t matter whether the lender selects the title company or allows the borrower to shop. The instructions for Block 6 specifically exclude title services. Lenders are requesting the charge for Owner s Policy be placed in the charges that can change bucket and the Lender s Policy in the 10% bucket. Their justification is that we are not on their provider list so the OP should not be listed in the 10% Bucket with Title Services and Lender s Policy. Can we split the OP in one bucket and the Lender s Policy in another Response: It is "all or none" in regard to title services - both lender's policy and owner's policy if provided by the same agent. If the title agent/settlement agent is on the lender's provider list - the charges for both go in the 10% bucket - if not on the list - the charges for both go into the unlimited tolerance (these charges can change) bucket. The owner s policy and loan policy are generally issued simultaneously by the same provider; therefore, they are either in the 10% tolerance bucket if the title agent/company was on the service provider list or in the unlimited tolerance bucket if the title agent/company was NOT on the service provider list. The policies remain together in the same bucket. In Texas, even if the settlement agent and title agent are different entities, typically only one of them is actually selected by the lender or borrower and that provider and coordinates the other service so again, the charges will be in the same tolerance bucket depending on whether the provider arranging for the services is or is not on the list provided by the lender to the borrower. We will note that in some states, not Texas, there may be a title company and an escrow company two separate companies that perform separate functions that could ultimately have fees for conducting the settlement and title insurance in separate tolerance buckets. Refer to the reference below for further guidance on a situation such as this. Reference: HUD FAQs - GFE Written List of Providers FAQ #8 (Pages of the 01/28/10 version). One lender requested that we show the owners title policy in the 1300 section because they did not require it and it was optional at the borrower s choice. First of all, my understanding is that the owner s policy (and loan policy also) ALWAYS goes in the 1100 section regardless of whether the borrower selects from the lender s list or not. Please confirm. AND, I don't think the owner s policy can be split from the loan policy as to bucket. Please confirm. Response: You are correct on both counts. RESPA regulations only allow entries in the 1300 series if there is not a specified series or line for the fees. In the case of the owner's policy, it must always be on Line 1103 on Page 2. Whether it is in the 10% bucket on Page 3 or in the "these charges can change" bucket is determined by whether the title agent was on the list of identified providers given to the borrower by the lender with the GFE. If the same title agent is issuing the owner's and loan policies, they will both always be in the same bucket on Page 3. Page 15 of 32

16 I'm confused that in Texas we have been directed to put our escrow fee on line My thought was we were not allowed to charge a closing/settlement fee in Texas...unless a 3rd party actually does the closing and charges a fee. Response: Previous TDI audit guidelines required that Texas title agents use a line other than Line 1102 on the HUD-1 to collect any escrow fee. In keeping with the new RESPA regulations, new TDI audit guidelines instruct the settlement agent to use Lines 1101 to collect the escrow fee from a borrower and Line 1102 to collect the escrow fee from a Seller. These guidelines also require the amount of Line 1101 that represents the borrower s portion of the escrow fee be itemized outside the column on Line TDI audit guidelines require this disclosure outside the column on Line 1102 regardless of whether the escrow fee is being paid to the settlement agent or to a third party. We've always called our fee for handling the escrow/settlement an "Escrow Fee," but should we just conform and use Line 1102 with a roll-up into 1101? Response: We will still be collecting an escrow fee; it will just be on a HUD Line that doesn't use that name. The borrower s portion of the escrow fee is lumped with other fees in the column on Line 1101 and disclosed outside the column on Line 1102 (in keeping with TDI audit guidelines). The seller s portion of the escrow fee is collected from the Seller in the column on Line Can the presenters please go over the treatment of the guaranty fee for Owner's and Loan policies? Response: The $5 Texas Policy Guaranty Fee for the loan policy must be lumped into the borrower s charge on Line The $5 Texas Policy Guaranty Fee for the owner s policy must be lumped into the charge for the owner s policy on Line Because these fees are paid to a third party from escrow, there must be a disclosure outside the column on Line 1109 or higher. The Texas Department of Insurance audit guidelines indicate that there may a single disclosure of $10 for both fees; or two separate disclosures of $5 each; the payee is either the Texas Guaranty Association or TTIGA (Texas Title Insurance Guaranty Association). If the settlement agent is not the title agent, and 100% of the premium is paid to the title agent at closing, does the settlement agent still have to break down the premium split between Agent and underwriter on lines of the HUD1? Response: It is our understanding that the settlement agent must disclose the agent/underwriter split on Lines 1107 and 1108, regardless of whether or not the settlement agent is also the title agent. Agents paying other agents where to show; inside or outside the column? Response: If the title agent is paying another agent a portion of the title insurance premium (whether a percentage or flat fee) for closing the transaction or title evidence or if the title agent is paying an attorney for closing the transaction, the payment must be disclosed outside of the column on Line 1109 or higher and should include the name of the Payee, the amount (expressed in dollars) and the service for which the fee is being paid. The amount of this payment must also be deducted from the amount retained by the Agent on Line Reference: HUD FAQs, 01/28/10 version, Page 51, HUD Series - #22 TDI Audit Guidelines Page 16 of 32

17 Some of our lenders are saying that their underwriters are requiring itemization (outside the column) of admin fees (i.e., copies, courier fees, etc.) included in the lump sum on Line 1101, but doesn't that defeat the purpose of the lumping into 1101? Should we disclose or not? Response: HUD has been extremely plain in their instructions to the settlement agent with regard to this issue. Fees paid to the settlement agent should not be separately itemized outside the column, only fees paid to third parties should be itemized. The Texas Department of Insurance in its audit guidelines does not require a breakdown of the Line 1101 fee on the HUD-1 (nor do they require a breakdown of the individual charges for title endorsements), although they do require the settlement agent to maintain a record of the breakdown in the closing file for audit purposes. If the lender needs a breakdown of the component fees making up the Line 1101 charge to the borrower, this could be accomplished by a separate Fee Sheet from the settlement agent to the lender. References: RESPA, Reg X, Appendix A to Part 3500, Instructions for Completing HUD-1 General Instructions RESPA, Reg X, Appendix A to Part 3500, Instructions for Completing HUD-1 Lines HUD FAQs, 01/28/10 version, Page 47, HUD Series - #2 and #3 HUD FAQs, 01/28/10 version, Page 49-50, HUD Series - #17 If the cost of an Owner s Title Policy is paid by the Buyer does it have to be disclosed on the GFE and if so, where? Response: Regardless of who will ultimately pay for the owner s policy, the estimated cost must be disclosed in Block 5 of the GFE and the charge collected from the borrower in the column on Line 1105 of the HUD-1. What should the lender do if they failed to disclose the cost of an Owner s Policy on the GFE for a purchase money loan? Response: On the comparison chart on Page 3 of the HUD-1, the GFE column for Block 5/Line 1103 will be zero and the HUD-1 column will contain the actual cost. If the title agent is on the Lender s Provider List, and the total of the items in the 10% tolerance bucket exceeds 10%, the lender must cure the breach. If the title agent is not on the Lender s Provider List, there is no consequence to the lender for failure to disclose the cost of optional owner s coverage. Doesn t RESPA state that the customer is allowed to choose the title company? Response: No, RESPA and the regulations do not mandate that a borrower be allowed to select the title company. The regulations do prohibit a seller from requiring a buyer to purchase title insurance from a specific title agent. The regulations also prohibit a lender from requiring a borrower to purchase title insurance from a title company affiliated with the lender. References: 12 USC Section Title Companies; Liability of Seller RESPA, Reg X, (b)(2) Affiliated Business Arrangements Page 17 of 32

18 On a construction loan which is also a purchase money transaction (M&M Lien on Improvements) and will be covered under RESPA does the estimated cost of an owner's title policy need to be included on the GFE? Response: If the loan is partially for purchase money, we believe that the cost of optional owner s title coverage should be included in Block 5 of the GFE. If the owner elects to increase the coverage to include the cost of the immediately contemplated improvements, this would likely meet the criteria of a changed circumstance allowing the lender to issue a revised GFE with the increased estimate. Our bank is located in Oklahoma and we often use Attorney Title Opinions instead of title insurance. Would the fee for the Title Opinion be listed under #4 Title services and lender s title insurance? If so, would both the preliminary and final title opinions be listed there or would the preliminary be listed under #5 Owner s title insurance and the final under #4 Title services and lender s title insurance? If they are not listed under #4 or #5 then would they be listed as #3 or #6? Response: We believe that fees for title searches, title examinations, and title opinions would be title services and should be shown in Block 4 of the GFE. Both the preliminary and final title opinions would be title services and should be included in Block 4. The cost of a title opinion would not be included in Block 5 of the GFE. RESPA regulations say that Block 5 only contains the cost of an owner s title insurance policy and related endorsements. Also, title services (such as but not limited to a title opinion) should not be included in Block 3 or 6 of the GFE because RESPA rules specifically say that title services must be excluded from those blocks. Reference: RESPA, Reg X, Appendix C to Part 3500, Instructions for Completing the GFE Blocks 3 6. Manufactured Housing Transactions On loans that have a mobile home title to be surrendered or transferred, what line does that fee go on? Response: It is most likely that HUD would consider this type of fee to fall into the title services category because it would be required in order to transfer title and insure the results. It is a type of curative matter. That means it would be lumped into GFE Block 4 and HUD Line The lender is unlikely to be aware of these fees at the time the initial GFE is issued, so should be contacted when the fee is known so that that the lender can make a determination of changed circumstances and whether to issue a revised GFE with the increased estimate. Page 18 of 32

19 Surveys Will surveys, in all circumstances (e.g. acquiring just because the borrower wants one vs. required because it's needed for title insurance purposes like need exact legal or to amend the survey clause), be shown in the 1300 section of the new HUD-1 and included in the 10% tolerance bucket? Response: Survey charges are a somewhat tricky issue with these new RESPA guidelines. According to the actual Regulations, including Appendix A - the cost of surveys still belongs in the 1300 series of the HUD- 1, regardless of the purpose for the survey. HUD in their FAQ document clouded the issue, however, by describing instances in which the charge for the survey would appear variously in the 800, 1100 or 1300 series. It is the general opinion among attorneys advising lender clients in Texas (not the universal opinion, but the opinion of the majority) that if the survey is necessary because the lender requires "enhanced" lender title insurance (by amending the area and boundary exception) then it is a lender requirement and should be shown in Block 6 on the GFE and roll into Line 1301 on the HUD-1; if the survey is necessary to resolve a title matter - shown as a Requirement on Schedule C of a Commitment - then it can be construed as a title requirement and included in GFE 4 / Line 1101 on the HUD-1 (according to the FAQs); and finally, if the lender does not require enhanced lender coverage and the title agent does not require a survey to resolve a title matter, but the buyer wants a survey for his own purposes, it will not appear on the GFE and will be placed on an additional line in the 1300 series of the HUD- 1. Whether the cost of the survey appears in the 10% tolerance bucket or the bucket of charges that can change on Page 3 of the HUD-1 depends on whether it is either required by the lender (or title agent) - and, if so, whether the surveyor who performed the survey is on the list of service providers given to the borrower by the lender. If the surveyor used is on the list - 10% tolerance bucket; if not - "charges can change" bucket. If the borrower simply wanted the survey for his own purposes - it does not appear on the GFE, nor in the comparison charge on Page 3. Please clarify your statement that surveys are not ordinarily required by title companies. In rural settings, fences move, mobile homes are moved on and off property, boundary line issues and encroachments of improvements are all reasons to require surveys. Response: In Texas, a survey is required by law to give the lender enhanced loan policy coverage by amendment of the area and boundary exception but not required simply to issue the loan policy. So - if the survey is for the purpose of giving "enhanced" title insurance coverage to the lender - we consider that survey to be "required" by the lender. This would cover the situation of the fences moving or encroachments, etc. If, however, the survey is for the purpose of curing a title defect - then it would be "required" by the title agent. A boundary line dispute might be such an issue - or a legal description that is incomplete - or where multiple descriptions conflict, etc. Page 19 of 32

20 Homeowner s Insurance RESPA QUESTIONS and ANSWERS If we do not collect for homeowner s insurance at closing, do we enter a charge amount? Response: On a home equity loan (or other loan only transaction) the borrower probably already has insurance. If it is unknown at the time the GFE is issued whether the existing coverage is adequate, the GFE should include an estimate of the cost for new or revised coverage. If the insurance is already determined to be adequate and the borrower does not need to pay any additional premiums for changes in coverage, then there would not be any insurance premium estimate shown on the GFE and no premium would be collected (or shown as POC). If the borrower does need to obtain and pay for increased or changed coverage to comply with loan or investor requirements then the additional premium would be collected in the column on line 1002 of the HUD-1. If the borrower paid the premium for this increase or change outside of closing the amount would be shown outside the column as POC on line 1002 of the HUD-1. Reference: HUD FAQ Document, GFE Block 11, Question #1 (Page 31 of the 01/28/10 version) Government Recording Charges With regard to the estimate for Government Recording Charges on the GFE, if there are riders to be recorded with the mortgage document and the bank was unaware of these when the GFE was issued, is this a changed circumstance that would allow the bank to issue a revised GFE showing an increase in the estimated cost of recording? Response: That is a good question. The general presumption will probably be that the lender should be familiar with what Riders will be attached to the loan document for each type of loan - so that when the application is for a type of loan that requires riders, the cost of recording the document including the Riders should be accurately estimated. Lenders now need to become familiar with required loan documentation in order to make accurate GFE estimates. Earnest Money Deposit Where is an earnest money deposit disclosed? Response: Earnest money is not disclosed on the GFE. On the HUD-1, the buyer is credited with any earnest money deposit on Page 1, Line 201. Any portion of the earnest money deposited directly with the seller is charged to the seller on Page 1, Line 501. Handling Items Paid Outside Closing (POC) by Borrower A lender writes - In most instances we collect a fee upfront for the appraisal. If we collect less than the actual fee, there is an additional amount to be collected at closing; if we collect more than the actual fee, there is an amount to be refunded to the borrower. Please let us know the best and proper way to show the POC fee, and the amount to be collected or refunded. Response: On the GFE, the estimated cost of the appraisal should be shown on Block 3. On Page 2 of the HUD-1, all payments to third parties that were estimated on the GFE must be Page 20 of 32

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