WELCOME RESPA 2010 “Implementation Consistency”

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WELCOME

RESPA 2010

“Implementation Consistency”

The Goal

Highlight known implementation inconsistencies and provide guidance to correct

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Current Issues

• Inconsistencies in implementation make it difficult for consumers to comparison shop

• Third party originators must manage to varying requirements

• Settlement agents and lenders may disagree on completion of HUD-1 Settlement Statement

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What Does “Restrained Enforcement” Cover?

It only covers a lender if they have implemented RESPA “in good faith”

– New forms MUST be used

– Lenders should be abiding by the intent of RESPA• Fee categories• Tolerances

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What Does “Restrained Enforcement” Cover?

• It is intended to provide lenders and HUD time to understand implementation gaps and interpretation inconsistencies and resolve them while providing RESPA benefits to the consumer

• Guidance will be rolled out to the industry regarding specific areas of restrained enforcement

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Worksheet?

HUD believes worksheets can be useful for generic rate quotes, BUT…

– If a consumer asks for a GFE, the originator should disclose the information needed to provide a GFE

– A consumer should not have to show “intent to move forward” to receive a GFE

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Worksheet?

HUD believes worksheets can be useful for generic rate quotes, BUT…

– A worksheet should not look like a GFE and be clear that it is not a GFE

– A worksheet should never be used “in lieu of” a GFE• If a consumer has provided the required elements

in a lender’s policy a GFE must be provided

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Worksheet? (continued)

– A worksheet used in conjunction with a GFE should contain the fee amounts as the GFE, but may provide additional items deemed important by the originator (seller credits, other non-loan fees, cash to close calculation, etc.)

– If a worksheet is used as a tool during the pre-qualification or pre-approval process (a process used when there is no property address), a refinance should not be allowed

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Pre-Approval - What’s Acceptable?

• RESPA does not prohibit providing the GFE without a property address, but there is risk for the lender due to limitations of using a “changed circumstance”

• RESPA does prohibit a lender from REQUIRING the consumer to verify information provided in the application prior to providing the GFE

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So, how does a lender provide a firm pre-approval without taking on risk of providing a GFE without sufficient information?

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RESPA does not want a consumer to feel bound to a lender prior to understanding the cost of their loan and being able to shop.

It does not intend to prohibit a consumer from feeling confident that they qualify to shop for home! If the lender offers a pre-approval AND the consumer CHOOSES to provide documentation, it would not be prohibited

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Pre-Approval - What it CANNOT be?

• NEVER a refinance

• On a purchase, a pre-approval without a GFE should only be used if the consumer has not executed a purchase contract on a property

• The lender should NEVER advise a consumer not to disclose their property address in order to avoid providing a GFE

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Let’s move on to the GFE and HUD-1

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What Have We Heard About Block 1?

• All of the YSP

• Double the YSP

• None of the YSP

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So What’s the Right Answer?

• All of the YSP - sometimes

• Double the YSP - never

• None of the YSP - unlikely

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WHY?

Let’s go through the instruction for Block 1

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So what does this mean?

For wholesale loans- all fees paid to the broker, which may or may not be all or some of the YSP + lender admin and processing fees

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How Does It Differ for Retail?

• Block 1 does not represent compensation for LO

• Origination points, if any, and admin and processing fees

• Points and/or Discount Points may be listed in Block 1 or Block 2

• In Block 2, a credit would only be listed if the lender plans to pay borrower fees or part of their origination points

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What are Administrative and Processing Fees?

• Basically all loan origination processing fees EXCEPT tax service, credit report, flood certification, life of loan flood and appraisal

• Includes third-party fees for services the lender uses to process or underwrite the loan

• Third-party fees not determined by the lender, but required will go into Block 3 - 3rd party subordination fee, HOA certifications

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Pricing Scenario Number 1Wholesale Pricing and Wholesale Disclosure

Loan Amount $200,000Interest Rate 5%

Yield Spread Premium 1% = ($2,000)Lender Administrative Fee $300Broker Compensation $4,000 + $200 Processing Fee

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Retail Pricing and Retail Disclosure

Loan Amount $200,000Interest Rate 5%Origination Point 1% = $2,000Administrative Fee $500

Pricing Scenario Number 1

Retail Disclosure

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Wholesale Disclosure

Loan Amount $200,000 Interest Rate 5.25%

Lender Credit ($1,000)Origination Points 0Lender Administrative Fee $500

Retail Disclosure

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Loan amount $200,000 Interest Rate 5.25%

Yield Spread Premium (2.5%)

Broker Compensation $4,000 + $200 processing fee

Lender Administrative Fee $300Wholesale Disclosure

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Where do these fees go?

• Application Deposit– Does not go on GFE but will show as a credit on the

HUD-1

• Application Fee– Block 1

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Where Do These Fees Go?

• Escrow Waiver Fee– Retail

• Block 1(if priced at initial GFE) and Block 2 has Box 1 checked

• Block 2 with Box 2 or 3 checked– Wholesale

• Netted from YSP in Block 2 with Box 2 checked• Block 2 with Box 3 checked if no YSP

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Where Do These Fees Go?

Rate Lock Extension

– Retail

• Block 2 with Box 2 or 3 checked

– Wholesale

• Netted from YSP in Block 2 with Box 2 checked

• Block 2 with Box 3 checked if no YSP

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Key Thing To Remember

Adjusted origination charges (Line A) should

reflect the money a consumer will have to pay

for points and lender/broker fees

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What About Float to Lock?

Broker– Adjustment of YSP up or down will adjust the

consumers cash to close

– If a consumer wants to keep cash to close the same, then the broker chooses a different rate with a YSP consistent with the float YSP

– Regardless, of how the YSP is adjusted, because Block 1 does not change, the broker’s compensation is constant (unless they determine that they are reducing their compensation, Block 1 can always decrease

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Retail

In a worsening market, an adjustment to an interest rate

dependent charge would be disclosed in Block 2

• Float: 5.25% at a cost of 1% (with 1% in Block 1)• Lock: 5.25% at a cost of 1.5%• .5% would be disclosed in Block 2

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Retail

In an improving market, downward adjustments may

reduce Block 1

• Float: 5.25% at a cost of 1% (with the 1% in Block 1)• Lock : 5.25% at a cost of .5%• Block 1 would be reduced by .5%

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Moving Line A to the HUD-1

• Block 1 = Line 801: to the left of the column

• Block 2 = Line 802: to the left of the column

• Line A = Line 803: in the column

(any negative dollar amount will be subtracted from the borrower’s overall cost)

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Important Notes about Line A and the HUD-1

• Does not act as a ledger for broker compensation– Closing instructions need to include payments to be

made to the broker

• Lender/Broker credits to the borrower are captured in Line A (Line 803 of the HUD-1).

• No additional 200 series credits (unless there are credits not related to the interest rate)

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Important Notes about Line A and the HUD-1

• If itemization to show fees credited is needed, it should be done on a HUD-1 addendum unless required by state law or governmental loan program, then on a blank line to left of the column in the 800 series.

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Pricing Scenario Number 2 (HUD-1)

Retail

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Wholesale

Let’s Go Block by Block

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Block 3

• Tax Service

• Credit Report

• Appraisal (to 3rd party)

• Flood Cert / LOL

• UFMIP

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Block 3

• VA Funding Fee

• 3rd party Subordination Fee

• HOA Certification

No providers disclosed on written list, as consumers cannot shop

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Block 3 to the HUD-1

Move fees to 804 to 899 lines

• Need to list vendor to which payment is being made

• Credits captured in Line A of the GFE and Line 803 of the HUD-1 may not be itemized on page 2, but can be on an addendum

• All of these charges will move to the 10% aggregate tolerance category in the chart

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Next up … Block 4

• Title exam and evaluation

• Preparation and issuance of commitment

• Preparation and issuance of policies

• All settlement and escrow services

NOTE: does not include settlement fees that are separate charges to seller (not borrower charges customarily paid for by seller)

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Old GFE vs. New GFE for Title Services

settlement fee abstract/title search

title examination doc prep

attorney fee commitment/binder

notary wire fee

lender’s title insurance endorsements

courier/delivery copying

electronic miscellaneous

“Title services & lender’s title insurance”

Written List

• May separately identify the service of conducting the closing from “title service” on the written list.

• List the separate providers and amount.

• Combined amount must equal Block 4.

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Example

Block 4 = $1,000

Written List

Closing Company A $150

Title Agency A $850

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Written List

May not separate other services contained within “title

services” such as notary, abstract, administrative or

processing services.

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Block 4?

Doc Prep-Third Party• Note and DOT= Block 1 (performed for a lender)

• Deed = Block 4 (performed for settlement)

• Assembling Loan Docs for Closing = Block 4 (performed for

settlement)

Title Review• Lender only = Block 1

• Buyer only = N/A

• For Title Commitment = Block 445

Block 5

• On all purchases

• Basic rate

• Even if “paid” by seller

• Subject to 10% tolerance if “unshoppable” or if borrower selects provider from written list

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Let’s move the Block 4 and 5

fees to the HUD-1

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1100s Example

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Summary: Outside Column

Line 1102 – settlement/closing fee

Line 1104 – lender’s title insurance premium & related endorsements

Line 1105 – lender’s title policy limit

Line 1106 – owner’s title policy limit

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Summary: Outside Column

Line 1107 - $ of title insurance premium + endorsements retained by agent

Line 1108 - $ of title insurance premium + endorsements retained by underwriter

Line 1109 et seq. - title charges paid to 3rd parties

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Line 1102: Itemized 3rd Party Charge

3rd party borrower charge listed left of the column

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Line 1102: Seller Charge

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Separate seller charge in seller’s column

Block 6

• All “shoppable” services such as:

survey

termite

• Included in 1301 & itemized in 1302 et seq

• Blocks 4 & 5, even if “shoppable”, does not get moved into Block 6

• Possibly charges typically in Block 3, if the vendor is an affiliate of the lender

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Let’s move these charges to the HUD-1

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Fee category: 1300s

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Block 7

• Charges by state or local government to record

• Per page or per document recording charge

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Block 8

• Tax charged by state or local government

• Tax based on either loan amount or sales price, usually as a percentage

• Not just on purchases

• Called by many names

(e.g. recordation tax, intangible tax, excise tax, doc stamps, deed stamps, mortgage stamps)

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Block 8: When NOT Required?

• If state law attributes all to seller = $0• If state law attributes some to borrower = some

Exception: If you have contract prior to issuing GFE

and contract assigns MORE than state

law, put the higher amount.

Why?...

Contract = not a changed circumstance later

If contract assigns LESS than state law, put amount assigned by state law

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Let’s move these

charges to the HUD-1

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1200s: Outside the column charges

Block 9• Initial deposit for escrow account

• If none required, put $0

Block 10• Daily interest charge

Neither Blocks are subject to a tolerance

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Block 11

• Includes any insurance to protect property (e.g. hazard, flood, earthquake)

• Refinance or second: if borrower has insurance previously, may be completed with $0

• Not required to be on “written list”

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Comparison

Chart

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Separate providers

If the provider of “Title service and lender’s

title insurance” and the provider conducting

the closing was separated on the written list

three possible scenarios occur…

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Three Scenarios

1. Borrower shops and chooses providers

NOT on the written list

2. Borrower chooses both providers from

the list

3. Borrower chooses one provider from the

list and one provider not on the list

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Examples

Both providers NOT on list:

Both providers on list:

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Examples

One provider on list:

One provider NOT on list:

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Tolerance Cure

• Charges exceeding tolerance not a violation of

RESPA Section 5 IF cured within 30 days after

settlement

• If cured at settlement, the HUD-1 should be revised

to list the tolerance cure

• If cured after settlement, the revised HUD-1 must be

sent to the borrower

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The HUD-1, Cure and the 10% Aggregate Tolerance Bucket

$1,015 x 1.10 = $1,116.50 maximum tolerance increase allowed

$1,440 - $1,116.50 = $323.50

$323.50 is listed as a lender credit to cure in Lines 204 – 209

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Page 3 of HUD-1

Page 1 of HUD-1

HUD-1 Example

List a credit to cure for charges that exceed the tolerance threshold

Example: If the difference is attributed to a specific

line item

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Questions

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Documents

WELCOME RESPA 2010 “Implementation Consistency”