3 Personal/corporate/combined net worth requirement: Minimum
4 Annual origination volume: Minimum
8 Lien position: 1st
9 Lien position: 2nd
11 FHA / VA
12 FNMA / FHLMC
13 HLTV programs
14 Home equity
15 Home improvement
16 Jumbo residential
17 Mixed-use properties
3$ 4$ 56789
Flagstar Wholesale Lending
25K Y Y
Visit our Web site for further information at: wholesale.flagstar.com/lending/public/correspondent
Gateway Bank FSB
Nation’s top warehouse bank (Federal Savings Bank), early wires, TPOs, quick$ale
Moneyline Global Advisors
Top warehouse specialists
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RESPA: Untangling Its Knots
Set for Jan. 1 implementation, Real Estate Settlement Procedures Act changes could confuse
By Lauren Ingersoll, senior vice president, client-development counsel, Mavent Inc.
Changes to the Real Estate
Settlement Procedures Act (
RESPA) are set to take effect at the
beginning of next year. Now is the time
for mortgage brokers to understand some
of the complications that might result from
This past November, the U.S. Department of Housing and Urban Development
(HUD) published in the Federal Register
the final rule to amend RESPA. Compliance with the new requirements regarding
good-faith estimates (GFEs) and settlement
statements would be required beginning
this coming Jan. 1.
The rule still could change, however.
This past April, the U.S. House Financial
Services Committee approved an amendment to House Resolution No. 1728 (track
bit.ly/ofGww), the Mortgage Reform
and Anti-Predatory Lending Act of 2009.
The amendment calls for HUD to withdraw its final RESPA rule and to work
with the Federal Reserve System to issue a
new joint rule to resolve multiple conflicts.
Lauren Ingersoll, senior vice president,
client-development counsel for Mavent Inc.,
develops and maintains client and third-party
relationships through training and product
support. Ingersoll works with Mavent’s legal,
compliance and technology staffs to resolve issues and monitor needs concerning mortgage
compliance. Ingersoll earned her bachelor’s
degree in political science from the University
of Georgia and her law degree from the University of California Hastings College of the Law.
Contact (949) 474-4747 or Lauren.Ingersoll@ mavent.com or via www.mavent.com.
As of press time, the House was considering the bill and the amendment.
The final RESPA rule as of press time
mandates new disclosures that would require brokers to increase their vigilance
regarding accurate documentation. This
would include storing additional data and
running new tests to reconcile RESPA disclosures with each other as well as with
documentation required under other laws.
In the HUD analysis of the impact of
the new rule — a nearly 600-page report —
the agency states that the final rule was issued “to simplify and improve the process
of obtaining home mortgages and to reduce settlement costs for customers.”
HUD says it sought to simplify the
process for borrowers by providing clear
disclosures that limit the “proliferation of
fees” disclosed on these documents. The
agency also sought to reduce transaction
costs for borrowers by promoting competition among lenders.
Because HUD did not reconcile the disclosures required under RESPA with other
regulations, however, a presumably unintended consequence of the changes could
be an increase in the number of documents
for mortgage companies to prepare and
compare at the closing table. This likely
would increase transaction costs as well
as consumer confusion.
The final rule also calls for important
revisions to the loan-origination process — including modified versions of the
GFE and HUD-1 and HUD-1A settlement
Among other things, the revisions include significant modifications to the way
fees are disclosed. But these modifications
may be inconsistent with certain state
laws. Although HUD has the authority
to determine whether inconsistencies exist, it does not have the authority to find
an inconsistency if the state law is more
More specifically, the new GFE, HUD-1
and HUD-1A have a line called “our origination charge” that requires all compensation for all origination services performed
by or on behalf of loan originators to be
disclosed as one amount. Per the new
RESPA rule, loan originators include brokers
and lenders. This means that “our origination charge” combines all lender and broker
compensation — adjusted for lender-paid
broker compensation, also known as yield-spread premium, which is listed separately.
A new tolerance test also, with limited
exceptions, prohibits the adjusted origination charge from exceeding the value disclosed on the GFE. Ignoring the issue that
potentially all fees in a mortgage transaction are paid on behalf of the loan originator, this can create inconsistencies with
other regulations. It effectively eliminates
any Depository Institutions Deregulation
and Monetary Control Act pre-emption
for first-lien loans and inflates Home Ownership and Equity Protection Act (and state
Additionally, the new rule requires
itemization of certain title-service fees in
a way that isn’t compatible with the excludable charges under section 226.4(c)( 7)
of the Truth in Lending Act (TILA), further inflating annual percentage rates and
For brokers who fall under the definition
of loan originators, this would raise issues of
how to reconcile the lump-sum fees rolled
up on these forms with the data necessary
for the calculation of accurate annual percentage rates, finance charges, the amount
financed and the total loan amount.
To calculate these values, loan originators are likely to provide separate itemizations in their TILA disclosures. This would
cause issues with reconciling the TILA
disclosure with the settlement statement
as well as with complying with the new
tolerances for the GFE and HUD-1.
Finally, the new RESPA disclosures
raise compatibility issues with state laws
that prohibit certain fees or impose limits on fees paid to lenders or brokers. It’s
important to recall that RESPA is a con-sumer-disclosure regulation that mandates how fees should be organized and
presented to borrowers.
What RESPA does not do is step on state
laws that restrict the types and amounts of
fees that can be charged and who can receive those fees.
The bottom line is that brokers must
be prepared to store disclosed GFE data
for comparison and calculation of the
various tolerances permitted upon issuance of the final HUD-1 settlement
statement. Brokers also must produce an
accurate accounting of the breakdown of
fees included in “our origination charge”
to continue to comply with state lender-and broker-compensation rules, to enjoy Depository Institutions Deregulation
and Monetary Control Act pre-emption
for certain interest-related fees, and to
remain competitive when trying to keep
fee thresholds below those required by
various high-cost laws.