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We received many excellent and challenging questions during our webinar “Making Sense of the New GFE,” hosted in the month of February. As promised, below you will find answers to all of the questions asked. The answers come from our best available resources, and we will all continue to learn more as HUD posts new information.

Question 1 - We understand two circumstances in which the compensation to the originator can change: the loan amount changes and a portion of the origination charges are dependent on the loan amount; the loan program changes.  If a loan is floating and is later locked, we understand that the credit or charge to the borrower may change, but “Our Origination Charges” may not change and the originator’s comp (even if the YSP or rebate changes) will not change.  Correct?

• Answer: According to our interpretation of the resources we have utilized, that is correct.   HUD FAQ’s #19, page 8, states the following- If a borrower locks the interest rate after the GFE has been issued, a revised GFE must be issued within 3 days of the interest rate lock reflecting the date that the rate lock is good through.  Any interest rate-dependent charges (specifically Block 2, Line A and Block 10 on the GFE) and terms that changed must also be updated on the revised GFE.

Question 2 – We have seen several large lenders consider a change in pricing to be a changed circumstance that permits redisclosure and a change to Our Origination Charges and the broker’s comp.  Is this permitted?  If so, what is the rationale under the rule?

• Answer: This is not permitted once a rate has been locked.  HUD FAQ’s 1/28/10 states market fluctuations do not constitute a changed circumstance and a GFE may not be revised to reflect market fluctuations.

Question 3 – If I change the loan amount, does a new 1003, TIL and GFE need to be signed?

• Answer: These documents will need to be re-disclosed to the borrower within 3 days and evidence of re-disclosure or re-issue will need to be maintained in the file.

Question 4 – If the Buyer is paying a 1% commission of the contract amount to the seller (in this case a bank).  The transaction is a short sale.  Should this be disclosed as a closing cost on the GFE for the buyer?

• Answer: No. This charge is considered real estate commission and will not need to be disclosed on the GFE.

Question 5 – If a GFE is issued for a purchase of a property and the transaction falls out of escrow, and the buyer finds another home to purchase… is this considered a “changed circumstance”? I read in  the guideline  that “address” is not considered a “changed circumstance”.

• Answer: A change in property address does constitute a changed circumstance and a GFE may be reissued.  For clarification, if the legal description is maintained when a property address changes, for example with a new construction, this does not constitute a changed circumstance and the GFE may not be reissued.  A loan originator may issue a revised GFE reflecting only the increased charges resulting from the changed circumstance.

Question 6 – If a buyer applies to borrow $50,000 on a first mortgage and I issue a GFE based on that loan amount, and then the buyer decides to revise the loan amount to $250,000 (to possibly save on the origination fee), is this considered a “changed circumstance” allowing for an increased to my 801 compensation?

• Answer: Yes.  A requested change by the borrower, such as a requested increase in loan amount, is considered a changed circumstance and the GFE may be reissued.

Question 7 – A title rep told me we have to include state deed taxes on the GFE for purchases, even though the seller normally pays those in MN. Any other odd items we must add to the GFE?  Some brokers are using a ‘Cost Estimate Worksheet’ in lieu of the GFE, until all ‘6 pieces of required info’ are obtained.  do you have any comments/recommendations on that? Going over valid ‘changed circumstances’ would be helpful too.

• Answer: All fees related to the transaction must be disclosed on the GFE, regardless of whether those fees will be paid in part, or in whole, by the seller, buyer or other party.   Regarding Changed Circumstances, HUD FAQ 1/28/10 page 19 provides an abbreviated list of acceptable changed circumstances allowing for reissue of the GFE; acts of god, war, disaster or other emergency, information deemed inaccurate particular to the transaction, borrower requested change in terms, expiration of the GFE itself, interest rate change before the loan is locked and parties added to, or removed, from title.

Question 8 – If the Provider of Services lists ABC TITLE COMPANY, the GFE2010/Initial fees worksheet reflects attorney fees and title insurance paid to DBA TITLE COMPANY (company not on Provider of Services list) and then the borrower chooses DBA TITLE COMPANY, is the broker/loan officer responsible for the charges on the HUD-1 by DBA TITLE COMPANY?   It is our understanding once a SPECIFIC name is reflected on the GFE2010/Initial fees worksheet then it is no longer considered “Borrower select” and must fall into the 10% variance.  Is this correct?

• Answer: According to the resources we have available, that is correct.  The originator should not be responsible for fees equal to, or less than, those initially disclosed if the service provider itself changes.  These charges will be subject to the 10% tolerance limitation.   A change in settlement service providers would not constitute a changed circumstance (HUD FAQ 1/28/10 pg 19 # 13).

Question 9 – What do you consider as legitimate changed circumstances that would allow “Our Origination Charges” to increase after initial GFE disclosure.  For example:
• Loan is locked, pricing to the originator increases, no other changes, originator timely discloses.
• Appraisal comes in higher than expected and at the same time (within 3 days of getting the value information) pricing to the originator increases, no other changes, originator timely discloses.
• Originator works for a bank and provides an initial disclosure that does not contain compensation from the lender or a corresponding credit to the borrower.  The loan is declined because the bank has a minimum credit score of 650 and the borrower’s score was lower.  Originator finds a lender who will accept borrowers with a credit score of 620 and the borrower’s score is higher.  The other lender will also pay the originator a .25% in a YSP for the same rate as applied for at the bank.  Originator discloses a new GFE which shows the same origination fee, and the YSP (for a higher “Our Compensation Charges”)

• Answer: Pricing to the originator may not increase. Block 1 , Your Adjusted Originator Charges, is subject to 0% tolerance, meaning, charges may not increase at settlement.  Information deemed inaccurate particular to the borrower or transaction that was not relied upon for issuing the GFE, such as estimated value or FICO change, should allow for a changed circumstance and a GFE may be reissued.  HUD is very specific in what fees can change and will only allow affected charges OR loan terms to be changed.  HUD FAQ page 18 #8 xv states the following would NOT constitute a changed circumstance:   a mortgage broker issues a GFE based on one lender’s loan products and origination fees, but places the loan with a different lender.

Question 10 – If we are showing 3% Origination Fee, this is to account for 1% Origination and 2% Potential YSP, to offset what we receive from the investor, Calyx Point (our origination system) has indicated to put the 2% figure in section 1302 as a negative figure.  Is this correct?  Most lenders are taking it this way but I have one saying it is wrong.  The problem that I see is the “interpretation” of the RESPA reform by each investor.

• Answer: We are unable to provide instruction on use of a particular LOS system.  Our recommendation is to consult your LOS administrator, or lender, to determine what is acceptable (or common) practice.

Question 11 - If a survey is more complicated than originally thought (e.g., the property has water features and/or multiple structures), would this be a change in circumstance?

• Answer: According to RESPA FAQ 1/28/10 page 15 #1 and page 16 #2  “Changed Circumstance” , this would constitute a changed circumstance.

Question 12 - If clearing title is more complicated (e.g., unknown recorded items), is this a change in circumstance?

• Answer: According to RESPA FAQ 1/28/10 page 15 #1 and page 16 #2 “Changed Circumstance”, this would constitute a changed circumstance.

Question 13 - If the borrower has locked a loan, then lowers the loan amount per the borrower’s request:
• The loan amount will affect the YSP – Is the Borrower Credit allowed to change lower in proportion to the YSP or does the mortgage originator need to absorb?
• This would also apply to if the broker has any responsibility to change Our Origination Charge lower or may that remain the same?

• Answer: Interest rate dependent charges in Block 2, as a result of a borrower requested change, can be a changed circumstance and a reissued GFE may be provided.  The revised GFE may only reflect the increased charges resulting from the changed circumstance.
  We are also able to provide the following information-GFE-Block 1, Pg 26:
  8.) Q: When the interest rate goes from float to rate lock, may Block 1 on the GFE change?

  A: No. However, Block 1 can increase due to a changed circumstance if the change affects the loan amount and all or a portion of the Origination Charges were calculated as a percentage of the loan amount. Block 1 may also increase if the borrower either requests a different loan product or the borrower is no longer eligible for the loan product contained in the initial GFE, but is eligible for a different loan product.

Question 14 - We have been getting a lot of questions about Block 6 and what exactly is required by RESPA law.

Some lenders seem to think that if the purchase contract requires a pest inspection, home inspection, or home warranty, then the GFE 2010 must include those items.

I cannot find anything in the RESPA Rule or RESPA FAQs that reference the purchase contract anywhere.

What I have found indicates that if the loan originator requires those items, then they must be included in Block 6. We are a mortgage broker and our loan originators do not require those items so they do not feel that they should be forced to include them. What are you finding is the precedent?

• Answer: Typically, items required as part of the purchase contract, and only by the purchase contract, do not have to be disclosed on the GFE.  However, if at any time, the charge is required by the lender,  the requirement to disclose that fee is applicable.

Question 15 – We still have lenders sending GFE’s back to the loan officers for “do-overs” when they don’t like the way the GFE was put together. (Some think the Important Questions section can have NA in Question 1, some think it has to have an actual date. Some think Question 4 should have a certain minimum number of days in it to match their company policy while the loan is in a float status, some let the loan officer choose. Etcetera.)

We understand each lender has their own interpretation of RESPA, and that we are in the 180-day period of leniency granted by HUD (through April 30th) while everyone gets used to the new forms, however, there seems to be too much interpretation going on. What happens after the 180 days are over? Has anyone heard anything about what to expect then? Lenders won’t be able to just ask for a “do-over” then, will they? As a broker, it is almost impossible for our loan officers to have perfect GFE’s because every lender has their own hoops to jump through.

We end up with more than one version of GFE’s in our files, and have asked our LO’s to write letter of explanations indicating that the lenders required them to revise and re-issue the disclosure document to meet the lender’s needs. This seems to be the best “audit-proofing” we can do under the circumstances. These are not “changed circumstances” and fall outside of RESPA guidelines and yet lenders are doing this every single day.

I realize this is a very general question, more of a concern, but anything you do have to address this would be greatly appreciated.

• Answer: We would like to be able to assist you with your question, however, we cannot comment on what lenders and investors are doing to accommodate specific transactions.  We can suggest you verify with your lender or investor when you have specific questions regarding your loan scenario.

Question 16 - If an investor will table fund a loan and immediately pay a servicing release premium (SRP) to the originating lender, must the lender disclose the SRP to the borrower?  If yes, where, included in Box 1?

• Answer: For transactions without a mortgage broker, the lender may choose not to separately disclose in Block 2 any credit or charge for the interest rate chosen on the loan.  If this block does not include any positive or negative figure, the lender must check the first box to indicate that the credit or charge for the interest rate you have chosen is included in our origination charge.  Box 1 of Block 2 will be completed with only the interest rate chosen.  Part 3500 RESPA Sect. Appendix C Instructions for Completing GFE.

Question 17 - My very top question is what we should be doing with the owners title insurance policy fee.  It is common practice in our area for the seller to pay 50% of the owners policy.  According to HUD’s FAQ’s, it still needs to be listed on the initial GFE that the borrower will be responsible for 100% of the fee–even though at closing the borrower will be credited back for 50% of it.

When it is time to do docs, with our software, the only way we can make our Itemization of Amount Financed correct is to go into our HUD page 2 and input the actual 50% amount there.  Most of the title companies handle it this way, and we match up correctly with them on HUD page 3.  However, a couple title companies are following the rule that they must credit the 50% amount back on HUD page 1, rather than correcting it on HUD page 2.  If they do that, it is difficult to make everything match for us.  If we input the actual 50% amount on HUD page 2, our Itemization will be correct–which is foremost in our minds, but the Itemization does not match the title company’s HUD page 3 since they still show the 100% amount there.  If we just leave it at the 100% amount on  HUD page 2, and credit the extra 50% off our HUD page 1 or the 1003, we match the title company, but the Itemization is incorrect.

This problem will only be magnified when there are other seller paids.  What is the best solution?

• Answer: The owner’s title insurance policy does need to be disclosed on the GFE if it will be a charge at settlement.  Keep in mind, all fees (in whole), regardless of who will pay those fees at settlement, must be disclosed on the GFE.  In answer to the second part of your question, we are unable to comment on the use of a specific LOS system and the input of fees.  We recommend contacting your LOS support for direction.  Your lender and title companies may also be of assistance.

Question 18 - I do have a couple of very important questions I was hoping to get answered.  See below and let me know what you can do?  We mainly do correspondent lending and warehouse our loans (have our own line) so none of the following situations are as a broker.

We have a closing company that we hire when our closer is out and they company is a group of attorneys, but not the closing attorney.  They are stating their fees should be included in the origination fees.  We sometimes may not know if we need to hire them upfront and have not disclosed the doc prep fees.  How can we address this and is it possible to have a changed circumstance with a revised GFE or are we required to eat the cost?  I was also wondering why the cost could not just go in the 1100 doc prep fee even though they are not involved in the title services or actual closing?

• Answer: The loan origination charge includes all charges received by the originator, including all amounts received for any services including administrative and processing services performed on behalf of the lender or mortgage broker.  Loan document preparation done on behalf of the loan originator is a processing and administrative service in the origination of the loan and would be considered as part of your origination charge.  HUD RESPA FAQ 1/28/10 page 44 # 1 and 2.

Question 19 – We sometimes waive our Admin fee for repeat customers.  Should we still be listing this in our origination charges and checking box 2a with a credit instead of just not including?  We say waived on the initial fee worksheet instead of entering as a negative amount.

• Answer: The fee may be included as part of Your Origination Charge, Block 1.  Block 2 is specific to credit (YSP) from interest rate chosen only and additional credits should not be part of this Block.

Question 20 – If there are any update changes such as appraisal fee, hazard monthly amount; can this be updated as they come along and does a new GFE need to be disclosed every time? [asked during webinar]

• Answer: If the updated changes qualify as changed circumstances that would require reissue of the GFE, the GFE must be redisclosed within three days of receiving the information.

Question 21 – Where should a final inspection from the appraiser fee be placed? [asked during webinar]

• Answer: This should be listed in Block 3, Required Services That We Select.

Question 22 – On Block 2, should the “credit” be a positive or negative amount? [asked during webinar]

• Answer: The credit should appear as a negative.  Your Adjusted Origination Charge will be a total of Block 1 and Block 2.  Block 2, if a credit from YSP, will reduce total settlement charges.

Question 23 – I believe this box can change is your rate is NOT locked. If it is locked it may not change. [asked during webinar]

• Answer: If the question is in reference to Block 2, going from an unlocked rate to a locked rate may constitute a changed circumstance and a reissued GFE may be disclosed with changes to Block 2 as well as Blocks containing interest rate dependant charges.  HUD RESPA FAQ 1/28/10 page 21 #3.

Question 24 – A changed purchase price will change the loan amount. will this be a changed circumstance? [asked during webinar]

• Answer: Yes.  HUD RESPA FAQ #1 page 15, 1/28/10:  Information particular to the borrower or transaction that was not relied on in providing the GFE and that changes, or is found to be inaccurate, after the GFE has been provided.  May include the amount of the loan, the estimated value or any other information that was used in providing the GFE.

Question 25 – The fees may decrease correct? [asked during webinar]

• Answer: Correct. Tolerance limitations apply to increase of fees at settlement.

Question 26 – If the til is off more or less .125 are we still req to re-disclose? [asked during webinar]

• Answer: Yes, if the APR increases more than .125, the TIL must be redisclosed and evidence of redisclosure must be maintained in the file.

Question 27 – As a “lender” are we required to mark any box in section #2? As a lender we are not required to disclose any ysp correct? [asked during webinar]

• Answer: Correct. Instructions for completing the GFE, section 5 of RESPA and 24 CFR 3500.7 states the following regarding Block 2 and disclosure required by lenders:  for transactions without a mortgage broker, the lender may choose not to separately disclose in this block and any credit or charge for the interest rate chosen on the loan, however, if this block does not include any positive or negative figure, the lender must check the first box to indicate that ‘The credit or charge for the interest rate you have chosen is included in our Origination Charge above’ (complete the box 1 with the interest rate).

Question 28 – On a VA loan how do we handle the extra fees? [asked during webinar]

• Answer: We need you to specify which extra fees to answer this question accurately.

Question 29 – How do we define a “change in program?”  For example, in a HECM loan, a borrower may initially want to draw down a small amount of money and at docs decide a large amount – this will change the amount of rebate paid on the UPB – is this a program change [asked during webinar]

• Answer: According to the information we have available, this does not constitute a program change.

Question 30 – Is an 800 phone number for a national company sufficient contact info for a list of settlement service providers? [asked during webinar]

• Answer: The settlement service provider list should include the following information:  Service, Amount, Company Information and corresponding HUD 1 line #.   Lenders may have different requirements, we suggest verifying with them what is acceptable and custom practice.

Question 31 – Do you believe “mortgage taxes” unrelated to the transfer of the property should be included as Transfer Taxes? [asked during webinar]

• Answer: No.  Block 8 is for Transfer Taxes and is subject to zero tolerance.  For Block 8, transfer taxes are considered state and local government fees on mortgages and home sales that can be expected to be charged at settlement. Mortgage taxes unrelated to transfer tax, such as property taxes, should be included in Block 9 -taxes held in escrow.

Question 32 – The answer seemed very evasive concerning the increase in compensation if the borrower requested an increase in the loan amount.  On page 26 Question 8 of the RESP UPDATE (1/28/10) it appears that HUD is stating that the broker’s compensation can increase IF all or part of the origination charges were based on a a percentage.  Just trying to get clarification on this issue.

• Answer: This is the information we were able to gather from HUD RESPA FAQ’s 1/28/10-GFE-“Changed circumstances”, pg 16 & 19:
  5) Q: If circumstances change, may a loan originator issue a revised GFE with changes to all of the charges and terms related to the loan?
  A: No, the loan originator may only change those charges and terms that are affected by the specific changed circumstance.

  9) Q: If a GFE is revised to reflect a changed circumstance, may other charges on the GFE be made to reflect market fluctuations?
  A: No. A GFE may not be revised to reflect market fluctuations.

  GFE-Block 1, Pg 26:
  8.) Q: When the interest rate goes from float to rate lock, may Block 1 on the GFE change?
  A: No. However, Block 1 can increase due to a changed circumstance if the change affects the loan amount and all or a portion of the Origination Charges were calculated as a percentage of the loan amount. Block 1 may also increase if the borrower either requests a different loan product or the borrower is no longer eligible for the loan product contained in the initial GFE, but is eligible for a different loan product.

Question 33 – If there’s a premium yield spread it is disclosed but does it go to the borrower and reduces his cost or the lender/broker gets to keep it as usual?

• Answer: All credit (YSP) for a chosen rate will show as a credit to the borrower on the HUD, reducing settlement charges.

ALWAYS check with your lenders and investors if you have any questions specific to your loan scenario. The information provided by Mortgage Compliance Advisors, LLC has been taken from various public resources and does not constitute legal advice.

We would like to thank those who attended our first Webinar: Making Sense of the New GFE. We have posted the slides from the presentation for you in PDF format. Click here to download the slides.

We received many questions about the GFE and answered the top 5 during the webinar. Any questions that we did not answer during the presentation will be answered in a later blog entry and also in our March 2010 newsletter.

We will be holding these free webinars every month, so please let us know of any topics you would like us to discuss. Thank you!

Hud posted a press release this morning, announcing more policy changes. These changes are aimed at strengthening FHA’s capital reserves while working to reduce risk. The announced FHA policy changes include:

1. Increased mortgage insurance premium (MIP)
2. Updated FICO scores and down payments
3. Reduced allowable seller concessions from 6% to 3%
4. Increased enforcement on FHA lenders

Read all the details in HUD’s press release.

With all the recent regulation changes, it can be frustrating trying to keep up. We are happy to answer your questions. Visit www.MortgageComplianceAdvisors.com or call 877-250-5243.

Check out our newly redesigned website to find upcoming regulation deadlines, the latest compliance news, and other helpful resources.

Our new website is designed to be a helpful central location where you can find an abundance of frequently updated information for regulations from FHA, Fannie Mae, Freddie Mac, VA, the FTC, etc. Each deadline or resource is linked to the official regulation or form, so that you can read the exact wording.

Regulations continue to change, but Mortgage Compliance Advisors will help you comply.

We found something interesting from HUD today and thought it might be helpful to you lenders. HUD posted a letter today from FHA Commissioner David H. Stevens with questions and answers for various topics, such as new FHA policies, reasoning behind changes to the FHA approval process, the new RESPA rule taking effect on January 1, 2010, etc. Read the whole letter here.